The U.S. economy remains relatively strong.
Retail sales are good and capital spending is at solid, but not at excessive levels.
Inflation is relatively low on a historical basis and we’re in one of the best employment environments, ever, in the history of our country. People at the bottom of the wage ladder are experiencing real wage gains for the first time in decades. Right now.
U.S. stocks are just a bit below record highs. Trade wars are creating some level of instability and uncertainty and our federal government is increasing spending at an unsustainable rate and spending too much.
Europe is relatively economically stagnant, and may continue in this manner for some time if not dip into recession relatively soon. Europe never really completely cleaned house in an economic sense after the financial crisis and they thus never truly recovered. Bureaucratic overlays and social program spending make their economic system less flexible and thus less resilient. Germany may try for some level of stimulus while the European Central Bank has already talked of making money easier. Italy and Spain have deep and protracted unemployment. China is struggling in relative terms but taking action to prop their economy.
We’re in a very strange time where government debt of many developed countries is trading at a negative yield. If you buy their debt you are effectively paying them to hold your money. In the U.S. you can get over 2% in a savings account federally insured.
The phenomenon of negative yielding government debt may be tied to seemingly insatiable demand for U.S. government debt and thus our yields are low but positive (as price/demand goes up for debt, yield goes down).
You may have read or heard about our yield curve inverting which simply means longer debt yields less than shorter debt, an unnatural occurrence and one that has preceded recessions in the past. However, every time our yield curve has inverted we haven’t always gone into a recession.
Recessions (simply defined as two, or more, consecutive quarters of contraction) can be painful but are natural and necessary with respect to correcting imbalances in the system and wiping out excesses. While you’re in one it seems like forever but they generally don’t last very long.
Recessions don’t just happen, they are generally brought about by overheating in the economic system whether it be borrowing, or stock prices, or something else, and our Federal Reserve Bank can help them happen by tightening monetary supply to kill excesses that are leading to higher inflation. The Fed’s target rate for inflation is 2% and we’re currently running below that level.
Will we get a recession? Probably someday but without a short term unexpected shock to the system it doesn’t seem likely in the next several months.
Recessions do, however, create opportunities to buy into the stock market at discounted levels caused by panic, as well as opportunities to possibly buy real estate or other assets at distressed prices.
