Biggest Economic Story of the Second Half: There’s No Recession

by Greg Valliere, AGF Management Ltd.

LET’S TAKE A BREAK from the impeachment frenzy and celebrate this morning. The Washington Nationals, given up for dead six months ago, are world champions, what a wonderful feel-good story. There’s another reason to celebrate: the much-ballyhooed recession still isn’t imminent.

THE MANTRA DURING THE SPRING AND SUMMER was that a recession was unavoidable, perhaps soon, because of the inverted yield curve. Many economists proclaimed that a recession was imminent, and the media eagerly spread the word, warning that it could doom Donald Trump’s presidency.

BUT DATA RELEASED YESTERDAY showed that GDP growth in the third quarter didn’t really weaken much; it was 1.9%, compared to 2% in the second quarter — not great, but not far below the economy’s trend growth level of about 2-1/4%. With the fourth quarter expected to grow by around 2%. there’s suddenly no talk of recession — a major reason, we suspect, why the stock market is at record highs.

ECONOMIC GROWTH COULD BE SUBSTANTIALLY HIGHER if there was some clarity on trade policy, but modest “Phase one” deal with China probably won’t be finalized this year, and the NAFTA replacement deal may be stalled in the House. When the trade uncertainty subsides, growth could get into the mid-2% neighborhood.

EVEN JEROME POWELL’S MAIN TAKE-AWAY yesterday was ignored by the press. He and most Fed officials have concluded that the recession fear has passed for now, so they can pause in rate cuts. Monetary policy is still quite accommodative, and fiscal policy is extraordinarily stimulative, with spending on steroids and the deficit sure to exceed $1 trillion a year well into the next decade.

A RECESSION HASN’T BEEN OUTLAWED, and we might worry about one by 2021. But this scenario doesn’t warrant the hand-wringing of just three months ago that a recession would arrive by this winter. It won’t. Actually, we still think there’s a Goldilocks scenario: moderate economic growth, a strong labor market, astonishingly low interest rates, tame inflation, with the stock market at record highs.

YET WHEN WE MEET WITH HIGH NET WORTH RETAIL CLIENTS, we hear nothing but anxiety. These investors tell us they think a recession is coming, largely because of what they hear from the press. But the press — and many economists — got it wrong; there’s no imminent recession.

 


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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