Several analysts have come out of the woodwork in the last few weeks predicting not just a U.S. growth slowdown, but the start of a recession in 2020.
These calls were amplified after a week of stock market volatility. Bond vigilantes are pointing to rising real yields (that have been adjusted for inflation) while bear market doomsayers have been looking at signals from international stock indexes, with markets like China down more than 20 percent on the year and many European indexes such as Germany and Italy also technically in correction (down 10 percent or more).
Is the fiscally turbocharged U.S. growth about to come to an end? We are certainly due for a recession. According to the National Bureau of Economic Research, the average economic cycle since 1945 has lasted about 58 months. This latest cycle, which started in March 2009, has now been going on for 115 months, just five months shorter than the longest period of economic growth on record (1991 to 2001).
And yet, the economy is growing at a robust pace of around 3 percent for 2018 and is set to grow at 2.5 percent in 2019 (according to IMF's latest world economic outlook): a moderation due to waning fiscal impulse and trade wars. But when does a late cycle economy transition into an economy that's verging on a recession?
TS Lombard analyst Dario Perkins has highlighted the four conditions for a recession to occur: 1) accelerating inflation 2) a squeeze on corporate profits 3) tight monetary policy and 4) macroeconomic imbalances such as asset bubbles.