One of our favorite market analysts, Brian Wesbury – who coined the term “Plow horse Economy” to describe the current economic situation – has been accused of being a “perma-bull” because he had discounted all the predictions of recession over the last 7 1/2 years. We can understand why people are concerned about recessions because 2008 is still fresh in our minds. The recovery that began in 2009 has been anemic. Millions of people have not seen their financial situation improve.
Remember fears about adjustable-rate mortgage re-sets, or the looming wave of foreclosures that would lead to a double-dip recession? Remember the threat of widespread defaults on municipal debt? Remember the hyperinflation that was supposed to come from Quantitative Easing? Or how about the Fiscal Cliff, Sequester, or the federal government shutdown? Or the recession we were supposed to get from higher oil prices…and then from lower oil prices? How about the recession from the looming breakup of the Euro or Grexit or Brexit?
None of these things has brought on the oft-predicted recession. Wesbury says that at some point a recession will come. We have not reached the point where fiscal or economic policy has eliminated that possibility. He mentions several indicators, including truck sales and “core” industrial production as indicators that should be watched.
Job growth continues at a healthy clip. Initial unemployment claims have averaged 261,000 over the past four weeks and have been below 300,000 for 80 straight weeks. Consumer debt payments are an unusually low share of income and consumers’ seriously delinquent debts are still dropping. Wages are accelerating. Home building has risen the past few years even as the homeownership rate has declined, making room for plenty of growth in the years ahead.
Meanwhile, there haven’t been any huge shifts in government policy in the past two years. Yes, policy could be much better, but the pace of bad policies hasn’t shifted into overdrive lately.
In other words, our forecast remains as it has been the past several years, for more Plow Horse economic growth. But you should never have any doubt that we are constantly on the lookout for something that can change our minds.
While the next recession may or may not be right around the corner, serious investors should be prepared for the eventuality so that when it does arrive, they will be ready. We invite your inquiries.