Why There Won’t Be a Recession in 2016
Welcome to Episode #20 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
In this episode, Tracey is joined by John Black, Zacks Chief Equity Strategist, to cover a topic that is on everyone’s lips: Is the US economy headed into a recession in 2016?
John has a PhD in economics, so he looks at the economy from a data point of view, much like the Fed.
He says there are two components the Federal Reserve looks at: GDP and employment.
Employment is especially important. In 2007, monthly employment started going into the negative well ahead of the economy. It was a sign of the recession to come.
In 2016, the employment numbers have been particularly strong. The unemployment rate is at 4.9%. Monthly job creation has averaged over 200,000 the prior 3 months. Even the weekly jobless claims don’t hint at any stresses despite the losses in the energy sector, with only 262,000 claims last week, the lowest since November 2015.
But what about all that gloomy manufacturing data? Isn’t it a warning sign?
John explains that with the purchasing managers indexes (PMIs), that the component with the input costs has plunged due to commodities prices falling. But future orders and backlog have held up well.
Purchasing managers are also adjusting their behavior as crude prices continue to fall. They are being conditioned to wait until the last minute to place orders because the prices keep falling.
What about the crude crash? Could that push the US into a recession?
While there will be some pain in the oil producing states like Texas and the Dakotas, the other states will benefit from the gasoline stimulus. Gas prices are below $ 2 a gallon even in Chicago, which is historically one of the most expensive markets. In other parts of the country, it is even lower.
This is real savings and is finally showing up in restaurants and retail sales.
There are other dangers to the economy such as a falling stock market. John explains how big of a pullback the S&P 500 would have to have to push the US economy into a recession. A mere 10% sell off won’t do it.
Tracey and John also discuss other possible stimuli to the US economy, including stimulus coming from areas you might not have thought about.
If there isn’t a recession, what stocks should you be thinking about buying for 2016?
Tracey and John are still betting on the consumer.
Tune in to this week’s podcast to find out why they like Casey’s General Stores (CASY – Snapshot Report), Sherwin Williams (SHW – Analyst Report), Williams & Sonoma (WSM – Analyst Report), Home Depot (HD – Analyst Report) and the Homebuilders ETF (XHB – ETF report).
– See more at: http://www.zacks.com/stock/news/208369/why-there-wont-be-a-recession-in-2016#sthash.GCVKco0t.dpuf