The US economic downturn: it’s only a matter of time

“Talk of a possible recession is picking up,” say Scott Lanman and Katia Dmitrieva on Bloomberg. The US economy is facing headwinds, from trade wars to slowing global growth. The US central bank, the Federal Reserve, has already U-turned on raising interest rates, which has given stocks a boost. But “the bond market is a different story”, says Patti Domm on CNBC. US Treasury yields remain surprisingly low, implying investors fear a slowdown more than rising inflation.

“It seems like there has to be an elevated probability of a recession this year or next,” argued Nobel Prize-winning economist Robert Shiller at a recent panel discussion at the Inside ETFs conference in Florida. Most economists still expect positive growth for this year, but more than three quarters of corporate chief financial officers expect a recession by the end of 2020.
There are certainly some concerning signs in the data. US industrial production fell by 0.6% in January. The decline “suggests a clear cooling at US factories that could prompt a slower pace of growth this year”, reports The Washington Post. And in December, retail sales plunged by 1.7%, notes Michael Pearce of Capital Economics. Such a severe slide may need to be taken with a pinch of salt, but even if spending rebounds, consumption growth “is on track to slow sharply in the first quarter”, says Pearce.
Meanwhile, companies have been warning of weaker revenues and profits as the sugar high from Donald Trump’s tax cuts starts to wear off. For example, Coca-Cola expects sales growth of 4% this year, down from 5% last year, reports the Financial Times. Regardless of whether a recession hits shortly or further into the future, US stocks don’t look to be pricing in any upsets that could lie ahead.