Several well-respected analysts believe that the U.S. is now in a recession, although others are not convinced. What economic signals are they watching? PublicDomainPictures / Pixabay
According to several well-respected financial experts, the U.S. in now in a recession … and the rest of the world could follow soon, if it is not already there.
In an article titled, “Worried About US Recession? It’s Already Here: Pro,” Raoul Pal, the publisher of the Global Macro Investor said, “something massive is going on in the global economy and people are missing it.”
Pal cites a number of factors that have convinced him that financial problems both in the U.S. and around the world indicate that a recession has begun.
Factors that Indicate the U.S. is Now in a Recession
- According to Pal, “the year-over-year change in global exports is at the second lowest level since 1958.” This means that countries around the world, including the U.S. and China, are exporting their products at record lows. The last time this happened was in 2009, during a world-wide recession that resulted in a 37 percent drop in export growth.
- The U.S. dollar has increased in strength. This makes our products even more expensive, which also contributes to lower exports.
- The drop in the value of U.S. oil prices has caused sharp drops in the value of energy stocks and the loss of jobs in the energy sector.
- Some analysts are concerned that the Fed may have acted too soon when they raised their benchmark interest rate.
Is it a Certainty That the U.S. is Now in a Recession?
Not all analysts agree that the U.S. has already slipped into a recession. Even Raoul Pal, in an article titled “Raoul Pal Explains What Indicators He Looks at to Decide if the Next Crisis Has Arrived,” said that “I don’t deal in certainties. It’s not like it’s definitely going to happen.”
One of the numbers that he watches is called the ISM. It is a monthly index released by the Institute of Supply Management which tracks the amount of manufacturing activity in the preceding month. If the index falls below 50 … and particularly if it drops to 45 … it virtually always indicates a recession. This is especially true if the trend lasts several months.
In addition to the ISM, Pal says he also looks at global exports, freight shipping, retail sales and industrial production. When all of these indicators start to slide, it is a strong indication we are in a recession.
Other Signals Indicate U.S. is Now in a Recession
Pal is not the only one who has been using the “R” word recently. On Nov. 2, 2015, CNN Money noted that the ISM had declined for the fourth month in a row. At that time it was down to 50.1 … approaching the 50 level that indicates we could be moving into a recession. CNN was concerned enough that they published an article asking “Is U.S. Manufacturing Signaling a Recession?”
In their article, CNN pointed out that there were three reasons for the drop in manufacturing … lower oil prices, a sluggish global economy and the strong U.S. dollar. These are the same reasons mentioned by Raoul Pal. CNN went on to say that none of these issues were likely to improve soon. Their article was written prior to the 2016 opening week of trading in the U.S. stock markets, which resulted in the worst percentage of losses in the first week of a year in history.
Some Analysts Disagree and Believe the U.S. is NOT in a Recession
The concerns of Pal and other analysts are by no means unanimous. Some analysts believe it is too soon to say that the U.S. could be in a recession. They point to the fact that the manufacturing sector is no longer as important as the service sector.
The beginning of a recession is typically seen in retrospect, since signals like the ISM report information from prior months. In addition, it takes more than one month of data for analysts to be certain of a trend. As a result, it may be a few more months before we know whether or not the U.S. has dropped back into a recession.
Meanwhile, investors remain nervous.
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