Numbers can do lots of things.
One thing numbers are good at is making you nervous about some vague point in the future based on what some sets of statistics have previously said about the futures that followed.
Our concern today is with US gross domestic product and what history says is most likely coming down the pike for the economy.
Namely: recession.
In a note to clients on Tuesday, analysts at 720 Global worked through some of the big takeaways from Friday’s disappointing GDP report, which showed that the US economy grew just 1.2% in the second quarter of 2016 and has now grown at an average of 1.2% over the past 12 months.
Based on data going back to 1948, there are several things that in 720’s view should worry investors or at least encourage them to keep their guard up.
In its report, 720 noted:
- All recessions since 1948 started with an average growth rate greater than the current 1.20% rate.
- There have been only three instances in which the one‐year growth rate was below the current level and recession did not occur. In the two most recent instances (2011 and 2012), weak growth was met with renewed rounds of extraordinary stimulus in the form of quantitative easing.
- Only 18% of all observations going back to 1948 are below 1.2%.
- Of that 18%, 94% occurred during or within a quarter of a recession.
Of course, we live in extraordinary times.
The recovery out of the deepest recession since the Great Depression has been disappointing. More than $11 trillion in global sovereign debt has a negative effective yield. Central banks in Europe and Asia have taken benchmark rates into negative territory.
At the same time, the US consumer, which accounts for 70% of US GDP, had one of its best quarters in years during the three months that ended June 30. So it’s not all bad — and not by a long shot.
But if history is anything like a guide (which is up for discussion!), then the US economy’s next encounter with recession could be coming up sooner than you think.
As reported by Business Insider