THE BOTTOM LINE
- The prospect of a recession remains a concern for some investors, based in part on shape of the U.S. yield curve, which has flattened significantly in recent months. But a careful look at key economic indicators tells a different story.
- Consider one useful way to measure the economy’s pulse: the volume of freight travelling by truck within the U.S., which has been reliably downbeat when the overall economy has been shrinking.
- Indeed, the volume of freight travelling by truck has fallen more than 15% year-on-year during five of the six recessions that have taken place since early 1974 – a period of some 44 years.
- More recently, freight volume has grown during most of the period since the Great Recession of 2008-2009. As of the end of April 2018, year-over-year volume has been strong – up 8.9% since the same period in 2017.
- Of course, trucking volume is only one indication of overall economic strength. But other measures tell the same story, according to Legg Mason’s ClearBridge Investments.
- ClearBridge Investment Strategist Jeff Schulze, who tracks the economy via his Recession Risk Dashboard, reports that the likelihood of a recession over the next 12 months remains low. (For more detail, read: U.S. Economy: Keep on Trucking.)
- That Dashboard looks at four overall factors: business activity, the consumer, inflation, and financial conditions. All four now point to expansion, with only one sub-category – profit margins – even slightly off its strongest level.
- So in their view, the coast is clear, at least for the coming year – and the economy should in all likelihood have a clear road ahead.
All data: Source, Bloomberg, as of May 24, 2018
The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.