Last updated: 10:14 / Wednesday, 16 March 2016
Analysis by Pioneer

Is the U.S. Growth Slowdown Trending into a Recession?

Is the U.S. Growth Slowdown Trending into a Recession?
  • Personal Consumption, Government Consumption and Investments drive US growth
  • There is a low probability that the US will enter recession this year
  • Inflation should gradually move towards the Fed Target of 2%

While the US Federal Reserve starts its two-day meeting, in which no rate hike is expected, Monica Defend, Head of Global Asset Allocation Research at Pioneer Investments writes that her outlook for the US economy for 2016 is for decent growth, driven by Personal Consumption, Government Consumption (finally back to contributing positively to growth after years of retrenchment) and Investments (particularly strong performance of Residential Investments, while Non-Residential Investments will face a difficult first part of the year).

She believes that "the probability of a U.S. recession this year is still limited and the resilience of our base case is confirmed against further stress on selected financial indicators. In particular, we expect the US consumer to be resilient and sustain growth on the back of a healthy labor market, improvements on the compensation profile, and still moderate inflation, which should support real income growth."

Amongst the key insights that can be found on her latest publication titled "A US Recession is not on the Horizon" are:

  • Leading indicators seem to point to a tentative stabilization and improvement in growth of the US and sectors hit by the strong dollar and weak oil price.
  • They currently expect inflation to move gradually towards the Fed Target of 2%. Should the oil and commodity prices trend higher than they currently assume in our scenario, we may witness a higher than expected increase in inflation, still not priced in by the market.
  • On monetary policy, they believe that Fed will be on hold in March, and will manage market expectations carefully. "A move in March would been an unwelcome surprise for financial markets, but we see this risk very limited."

To read Monica’s entire Update, follow this link.