U.S. Economy: No Road to Recession

Written by: Global Thought Leadership | May 25, 2018

Source: Bloomberg, May 24, 2018 Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

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
 

Definition:

The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

 

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The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.