Little Sign of Recession Risk in 2016 | Page 2 of 2 | ETF Trends

To be sure, 2H-2015 GDP growth slowed from 2.3% in 1H-2015 to 1.5%.  It is estimated that Q4 GDP slowed further to 0.8%.   But this is hardly a surprise after a long string of strong quarters and the historically volatile nature of GDP prints.  Despite all this, many are throwing around the recession idea.  Breaking the 2H-2015 into GDP’s components is illuminating and suggests recession fears may be overblown.

Component 1H—2015 2H-2015 (est.)
Consumption 1.8% 1.7%
Investment 0.8% 0.7%
Government Spending 0.1% 0.2%
Inventory Adjustments 0.4% -0.8%
Net Trade (Exports – Imports) -0.9% -0.4%

The main drag in the slowdown in 2H-2015 GDP growth is sure to be inventory adjustments.  Adjustments to inventories are largely transitory in nature and should not be assumed to impact GDP numbers on a consistent or regular basis.  And, since the US perpetually runs a trade-deficit the negative contribution to GDP is ubiquitous.  Of positive note, the strength of the waning US dependence on foreign-oil is likely to continue to positively impact GDP.

Other coincident indicators are not flashing ominous signs of a recession either.  US employers continue to add jobs at a pace that is bound to bring inflationary wage pressures.  Personal Income, Real Business Sales, and recovery in the residential real-estate markets continue to remain positive suggesting the US economy will not enter recession this year.


Herb Morgan is the Founder, CEO, and Chief Investment Officer at Efficient Market Advisors, a participant in the ETF Strategist Channel