Recessions, commonly defined as two quarters of negative economic growth, typically result as excesses are squeezed out of the economy.
Despite the volatility in global stock markets, many analysts aren’t convinced one is coming.
Lincoln Anderson, chief investment officer with LPL Financial and an economist in the Reagan administration, just doesn’t see what will cause a recession.
“Where are the excesses?” he asked at a lunch meeting Thursday hosted by Denver financial planners Brown & Tedstrom.
Unemployment has risen in recent months, but at 5 percent, it remains at a historically healthy level. The Colorado unemployment rate in December was 4.5 percent.
Companies have avoided hiring too many workers or paying them too much, so mass layoffs that will reduce consumer spending aren’t likely.
Rate hikes to head off inflation have triggered recessions in the past. High oil prices have pushed inflation up to 4 percent, but core inflation has remained contained at 2.5 percent.
That has allowed the Federal Reserve to stimulate the economy early on with additional rate cuts.
Factory output is down, but backlog orders are way up, which points to a rebound rather than a contraction in manufacturing.
U.S. exports are rising sharply as a cheaper U.S. dollar makes U.S. goods more affordable, and business inventories remain reasonable.
The housing market did have huge excesses, but a two-year decline is bringing it back to more reasonable levels.
“The housing market is in deep recession,” Anderson said, adding that the worst damage has passed.
Financial companies are suffering, but corporate balance sheets in other sectors remain robust.
Nonfinancial companies have so much surplus cash that they repurchased $600 billion of their shares in the past four quarters and probably will continue to do so.
Growth in the U.S. gross domestic product will run 2 percent this year, half that if oil prices spike back above $80 a barrel or higher, Anderson predicts.
His advice: Favor U.S. stock markets over foreign ones, focus on growth stocks instead of value and don’t panic.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
