August 17, 2018
The U.S. Business Cycle is Maturing
With the mostly sideways action in the markets this year, you may be thinking this is getting old, why are things so… foggy? Well, you’d be right, it is getting old. The business cycle, that is. It may be helpful to understand where we’re at in this cycle. So, here’s a sexy chart… {commence eye roll}
I believe the U.S. is advancing in its protracted shift toward the late-cycle phase (Exhibit).
The risk of U.S. recession remains low for now, but late-cycle pressures such as tight labor markets and monetary tightening (rising interest rates) have been on the rise.
U.S. tariffs, and the retaliatory tariffs of other countries, have so far been relatively limited in scope and size, but the threat of additional measures represents a major risk for the global economy and financial markets.
OTHER KEY POINTS
• Corporate tax cuts have boosted U.S. markets and partially offset these late-cycle pressures, but their effects are likely to fade while the Fed continues to raise interest rates.
• China has begun to ease policy amid growing economic weakness, reflecting a maturing global business cycle.
• Rising trade risks reinforce late-cycle conditions by amplifying inflationary and profit-margin pressures.
The U.S. has remained on a gradual progression through its business cycle, experiencing mid- and late-cycle dynamics and low risk of recession. But, again, economic growth remains healthy, but late-cycle pressures have recently been on the rise.
Global activity remains solid as well, but the pace of growth has deteriorated. Facing both downside risks to growth and upside risks to inflation, portfolio diversification is essential at this juncture in the cycle.
So, yes, it’s foggy out there. And the cycle is maturing (getting old!). But, we’re here for you, doing our best to shine the way through the fog of uncertainty.
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There, I said it.