Upbeat US economy

Despite widespread and misplaced anxieties about the risk of a recession in the US during the past year, the US economy continued to grow at a satisfactory pace of 2.1% p.a. in the third quarter of 2019.

This was in conformity with our forecasts at the end of 2018.

Many investors, commentators, central bankers and politicians, however, have been overly worried by continued low investment, slowing trade due to President Trump’s tariff wars, and other geopolitical risks such as Brexit, and military conflicts and disruptions to oil supplies in the Middle East.

The reasons why these concerns are misplaced are;

1. The US business cycle upswing is still firmly intact
2. US private sector balance sheets are still in good shape
3. Inflation remains low
4. Monetary conditions have eased substantially during the past six months.

Mid-cycle

In short, the US is still mid-cycle, not late cycle.

The basic point to grasp is that the business cycle upswing is the tide raising incomes, employment, expenditure and profits, while the geopolitical problems, trade wars, and similar concerns, while they may generate a certain amount of noise, are best regarded as merely waves on the surface of the tide.

Like waves in the sea, although individual rogue waves may cause temporary disruptions, none is likely to upset the forward and upward momentum of the underlying tide.

For the year ahead, this implies a record eleventh and, from July 2020, twelfth year of economic expansion since 2009, the longest in recorded US financial history.