• Macro Strategy

    The Inverted Yield Curve: Harbinger of Recession?

    May 2019

    An inversion of the U.S. yield curve historically precedes a U.S. recession with an average lead time of about 14 months. According to our yield curve-based model, there is a 34% probability of a recession in the next 12 months. The Index of Leading Economic Indicators indicates that the U.S. economy is slowing, not contracting. The latter, not the former, is what historically tends to precede a recession. The spread between year-over-year nominal GDP growth and the federal funds rate suggests that current policy is still accommodative in our view. Solid corporate profit growth and a record low unemployment rate underpin a positive fundamental view. 

  • Macro Strategy

    Last Time Was Different: Why Recession Fears are Overdone

    April 2019

    We believe the next recession is likely to be anti-climactic, particularly for anyone whose only experience is the 2008 financial crisis. We feel a normal, or possibly even shallow recession is more likely. However, the current weak position of monetary policy means that speed of recovery may be of greater concern than depth of a future recession.

  • Macro Strategy

    Not Dead Yet: Productivity is Looking Mid-Cycle

    March 2019

    U.S. labor productivity growth has been increasing over the last several quarters. This is strange late cycle behavior; improvements in productivity historically tend to happen during the recovery phase of a business cycle. We see this as a sign that the business cycle could have some life left to it, and a recession may not begin until after 2020.

  • Macro Strategy

    Global View: 2019 Risks

    January 2019

    We believe global growth could decelerate in 2019 even as the U.S. economy is expected to remain a point of strength. In our view, the changing relationship between the U.S. and China—and a potentially weaker Chinese economy—is the single most significant risk globally. Market volatility and business confidence are key risks. The Fed hiking cycle and oil price fluctuations also remain key concerns. There is generally more downside risk than upside risk to our 2019 view.

  • Macro Strategy

    A Stable Outlook for the U.S. Housing Sector

    January 2019

    Much of the data coming from the housing sector has been lackluster and many investors are wondering if there is cause for worry. Though the general economic recovery has been rather prolonged, we find evidence to suggest that there remain bright spots in the residential real estate market and that continued, albeit moderated, growth over the medium-to-long term is still possible.

  • Macro Strategy

    2019 U.S. Growth Should Exceed Expectations

    October 2018

    We believe 2019 U.S. growth could exceed expectations as a strong consumer and a rebound in productivity may allow for the economic cycle to extend further. Tax cuts are supportive of both consumption and investment while government spending could also play a role. As a consequence of healthy growth we would look for the Fed to follow its forecast of another 100 bps of tightening through year-end 2019 and expect 10-year yields to end 2019 higher.

  • Macro Strategy

    Global Debt: The Good, the Bad and the Unknown

    October 2018

    • The bad news: Government debt levels are high in the U.S. and Japan. Policymakers’ hands in these countries will likely be tied in the next recession, increasing the risk of a more prolonged downturn.
    • The good news: Consumers appear to be in good shape with relatively low leverage.
    • The wildcard: Corporate sectors appear to be diverging across countries. U.S. corporate debt is currently at historically high levels but recent profit growth helps mitigate that risk. Conversely, Chinese corporate debt is moving in the other direction—the Chinese government has moved from a policy of deleveraging to managing the fallout from the ongoing U.S.-China trade war. Euro area corporate sector remains highly levered but with improved resilience.
  • Macro Strategy

    U.S.–China Trade Update

    September 2018

    The ongoing U.S.–China trade war could have significant negative economic consequences on the U.S. if it continues into 2019. The U.S. administration has some leeway to prolong its aggressive negotiation tactics with the Chinese government due to the current strength of the U.S. economy and its relatively low trade exposure. China has the ability to counteract some of the negative effects of the trade war, although this will require curtailment of its much-needed de-risking campaign, including corporate sector debt deleveraging.

  • Macro Strategy

    Greater Expectations

    March 2018

    We are raising our growth and inflation projections due to the spending deal agreed upon by Congress in early February. We expect the Fed to hike rates three times. Our view remains on the low end of consensus as we believe the Fed would avoid moving too close to inverting the yield curve.

  • Macro Strategy

    Is Housing Crowding Out Consumption?

    January 2018

    Costly housing – a priority for consumers – may explain some part of the continued inability for other sectors to realize price increases.

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