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Here’s Why Recession Calls Are Wildly Exaggerated

The US economy is on pace to hit its all-time record.

Image via Alan Turkus/Flickr CC

Speaking at Mauldin Economics’ SIC 2017, BCA Research Chief Economist Martin Barnes and ECRI Co-founder Lakshman Achuthan provided an outlook of the US economy that surely contradicts the consensus sentiment.

Barnes pointed out that while the post-2008 expansion has been painfully slow, if it lasts for another two years, it’ll hit the all-time record.

He also pointed out that the US isn’t falling prey to the typical imbalances you would expect in a long cycle. “Importantly, inflation has been subdued—and inflation is a typical characteristic of late-cycle,” he said, adding: “We won’t get back to 5–6% interest rates. Maybe 3%, but we’re a long way from that.

No Recessionary Alarm Bells

Barnes noted that auto, housing, and business investments tend to slow down ahead of a recession, and he doesn’t see any alarm bells ringing in those sectors.

“The economy has grown at the rate you’d naturally expect it to grow at,” he concluded. “I don’t worry about the near-term prospects of the economy. We’re going to putz along at about a 2% growth rate.”

Reality Check

Taking the reins from Barnes, ECRI Co-founder Lakshman Achuthan echoed his largely positive, sanguine outlook.

Providing a dose of perspective, he noted that the Western economy experienced a breathtakingly quick rise, but that its position on top is an exception in the longer history of global GDP.

According to the ECRI’s analysis, the US is decisively in a growth rate cycle upturn, which began last year, Achuthan said, adding: “There is no recession in sight this year.”

However, he did warn that manufacturing data, a leading growth indicator, is now pointing to a new downturn in growth.

Achuthan wrapped up a mainly positive and insightful presentation at the SIC 2017 by saying that the cyclical outlook hasn’t been this good in years—but investors should be aware that a global industrial downturn is on the horizon.

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The Fed model compares the return profile of stocks and US government bonds.