October Business Conditions Monthly

– November 9, 2016

Excessive debt played a major role in the Great Recession, from December 2007 to June 2009. In the seven years since the recession ended, home prices have rebounded, and households have significantly reduced their debt load. Only recently have households begun to increase their overall debt, which has inched up just 2 percent from when the recession began. Debt growth for corporate and small businesses has been more significant, rising 36.5 percent and 29 percent, respectively. 


September Business Conditions Monthly

– September 14, 2016

The U.S. economy continues to expand at a pace below its long-term average. Revised data show the economy grew at a 1.1 percent annual rate in the second quarter compared with a long-term average annual rate of 3.2 percent. Consumer spending, a key driver, rose 4.4 percent and contributed 2.9 percentage points to overall economic growth. Business fixed investment remains weak, hampered by poor performance in the domestic energy industry, but our conclusion remains that it may well improve in the second half of 2016.


August Business Conditions Monthly

– August 12, 2016

The latest data on real gross domestic product, or GDP, show that the economy expanded an anemic 1.2 percent in the second quarter of 2016. That is the first time the U.S. economy has posted three consecutive quarters of growth below 1.5 percent since the time of the Great Recession.


July Business Conditions Monthly

– July 15, 2016

The U.K.’s surprising June 23 referendum vote to leave the European Union (Brexit) caused dramatic moves in global capital markets. In the days that followed, politicians from around the world offered a wide range of comments, from support for Brexit and independence movements in other European nations to anger and threats. In the U.K. protesters against Brexit took to the streets, while a string of political resignations left a leadership void.


June Business Conditions Monthly

– June 9, 2016

AIER’s Business-Cycle Conditions model rebounded in May to 50, a neutral position, following two months at 38, a level that had indicated economic weakness. This uptick supports our expectation that a strong labor market would boost consumer sentiment and spur further gains in consumer spending. It also justifies our reluctance to assert that a recession was likely when our index first fell below neutral. With our Leaders back at the 50 threshold, AIER researchers judge the risk of recession has receded, although it is still slightly elevated.


May Business Conditions Monthly

– May 16, 2016

The AIER Business-Cycle Conditions model shows the Leaders index unchanged at 38 for a second straight month (Table 1). While a reading below 50 reflects significant economic weakness, we believe it remains too early to conclude that a U.S. recession is likely in the next six to 12 months.


April Business Conditions Monthly

– April 19, 2016

The data we track to monitor economic trends indicate a weakening economy in the coming months. The latest update of the AIER Business-Cycle Conditions model shows a decline to 38 in our index of Leaders, its first drop below the neutral 50 level in 110 months. While this reflects spreading weakness and suggests caution, it is too early to call a recession for two reasons.


March Business Conditions Monthly

– March 11, 2016

AIER founder Col. E.C. Harwood believed that business cycles matter and should be taken into account when making personal financial plans. He wrote his classic, “Cause and Control of the Business Cycle,” (https://www.aier.org/sites/default/files/Documents/Research/pdf/eeb197409.pdf) published in 1932, to help people understand their significance.


February Business Conditions Monthly

– February 16, 2016

The U.S. economy has struggled with inconsistent performance for much of the current expansion, which began halfway through 2009. That inconsistency reared up again in the last three months of 2015. The initial estimate for gross domestic product, or GDP, the broadest measure of economic activity, shows that growth slowed in that period. Future revisions based on more complete data may show a different picture, but the first take puts real GDP rising at a meager 0.7 percent annual rate compared with a 2 percent pace in the third quarter and 3.9 percent in the second. 


January Business Conditions Monthly

– January 15, 2016

U.S. consumers are supporting growth, while credit tightening at the Federal Reserve and moderate economic expansion in the U.S. contrast with a sluggish global economy and generally stimulative central bank policies. Dollar strength and commodity weakness continue. Despite a roughly flat year for the broader market, commodity-related equities sharply underperformed the S&P 500 Index. Looking ahead, interest rates are likely to rise slowly, while the risk of recession remains relatively low.


December Business Conditions Monthly

– December 14, 2015

Despite some risks, the U.S. economic outlook for 2016 appears favorable. Overview The Economy… Despite some risks, the U.S. economic outlook for next year appears favorable. Consumer fundamentals continue to improve while household and corporate balance sheets are generally healthy. However, the prospect of rising interest rates poses a risk. Fed policy makers have indicated a gradual path is likely for future rate increases, suggesting a keen awareness of the risks to growth from overly aggressive tightening. Global economic expansion is also a concern. While the U.S. depends less on exports than many other nations, the combination of slow growth and a strong dollar weighs on some sectors. Our Leader’s index rose to 56 in the latest month from 50 in the prior month. Combined with our cyclical score of 70, we see the probability of recession in the next six to twelve months as relatively low. …Inflation… The CPI rose in October after falling in the previous two months, helped by a slight increase in energy prices. The latest AIER Inflationary Pressures Scorecard points to a neutral reading, with 10 indicators supporting rising inflationary pressure and 11 suggesting pressure is falling. Two are stable. The major change this month came from wages and productivity. Rising private compensation levels and higher labor costs, along with lower growth in productivity, put upward pressure on inflation. But this was offset by a decrease in other producer costs. Overall, there is no evidence that inflation will change significantly in either direction in the coming months. …Policy… The Fed is expected to raise its target for the overnight lending rate between banks by a small amount this month, the first increase in almost a decade. Since this move is widely anticipated, it is unlikely to have significant economic effect. At the same time, legislation pending before Congress would impose a new requirement that the Fed publicly disclose its interest-rate strategy and its reasons for any deviations. The bill, which has passed the House and is unlikely to pass the Senate, raised objections from the Fed, which is worried about its independence. …Investing With bond yields near 60-year lows, it’s difficult to justify expected total returns in the high single-digit range, as we have seen since 1982 for this asset class. Investors should carefully review asset allocations and be prudent in estimating future gains. U.S. equities have struggled this year as the effects of falling commodity prices and slow global growth weigh on the economy and earnings for some sectors. However, earnings are expected to rebound in 2016. Valuations remain close to the long-term average, especially given the low inflation environment. Overall, that suggests a neutral to slightly positive outlook for stocks. Investors may look to maximize exposure to domestic sources of growth such as consumer spending and capital investment outside of commodity-related industries.


November Business Conditions Monthly

– November 13, 2015

Strong holiday spending could be a gift to the economy Overview The Economy… Steady improvements in consumer fundamentals combined with still-solid consumer expectations provide a positive outlook for holiday spending, which can make or break retailer earnings. The strength of fourth-quarter consumer spending is likely to play a critical role in sustaining overall economic growth. However, our Leaders index fell back to a neutral 50 in the latest reading, adding a note of caution to the outlook. Despite that decline, our cyclical score remains solidly positive, suggesting a relatively low risk of recession ahead. …Inflation… The CPI fell this month, the second back-to-back monthly decline this year. The latest AIER inflation Scorecard points to further downward pressure on inflation for the months ahead. Only seven out of 23 Scorecard indicators support rising inflationary pressure, while 14 suggest falling pressure. The decliners reflect many forces: demand and supply, money, banking and credit, and costs and productivity. …Policy… The Federal Reserve held off raising short-term interest rates at its October meeting. Yet, its follow-up public statement indicated that consideration of a hike will be on the table at the next meeting in December. Markets expect an increase, but some disappointing economic data have left room for doubt. Congress adopted a budget bill that resolves immediate budget challenges. These include suspending the debt limit and setting parameters for government spending through September 2017. The measure also saves the Social Security disability program from collapse and limits for many Medicare participants an increase in Part B premiums that would have been the largest in history. But long-term fiscal challenges remain. …Investing Investors are favoring stocks over bonds as the prospect of interest rate increases tempers the outlook for returns on fixed-income securities. While the plunge in crude oil prices has begun to affect U.S. production, current rates of refining and high gasoline inventory levels are still helping to push pump prices lower. Retail stocks have been strong performers throughout the current cycle, and our economic outlook suggests continued support for fundamentals, but valuations may raise concerns. New cash inflows into equities are tilted heavily toward foreign markets. Reallocation by both strategic (passive) and tactical (active) investors may be a primary cause.