Home / Heads Up!

Heads Up!

February 22, 2016 | Weekly Commentary

Is the U.S. ECONOMY pausing before a growth spurt? Or, is the U.S. ECONOMY pausing before a recession?  The answer is debated each day in the U.S. stock market. Hence, the volatility.

Here is the argument for the first scenario (a pause before a growth spurt): Employment gains and the tight labor market are already driving up wages and salaries. That, along with savings from the lower gasoline prices, is boosting consumer spending, which is encouraging capital investment, which is causing businesses to hire, which, in turn, is driving employment gains. The cycle has also begun to include the housing sector. Employment gains make it possible for more people to form households, which spurs demand for apartment buildings and detached homes, which, in turn, leads to greater gains in employment. With faster top-line growth, corporate profits can also rise.

IF RECESSION IS AROUND the corner, it will result in a first in U.S. modern economic history. Each of the past six recessions has been preceded by a spike in crude prices, often called an “oil shock.” The logic is straightforward: Businesses and consumers suffer financial shock when this essential commodity suddenly becomes more costly. No modern economic recession was preceded by an oil price crash.

More likely than not, the U.S. Economy is pausing before a growth spurt. Using history as a guide this growth spurt will become more apparent in July, August, and September. Investors are advised stay the course to permit the market to work through this period of uncertainty.

Visit www.theweeklycommentary.com for more posts in this category. DISCLOSURES