There are two great points as to why the U.S. economy won’t fall into a recession. The first is that global central banks are easing with the Fed. This could spur a global cyclical recover in 2020 if the rate cuts are effective. A ratcheted up trade war between the US and China would be a mitigating factor for a turnaround, but recognize that the trade war didn’t cause the slowdown. Specifically, the percentage of global central banks whose last rate change was a cut shifted from 38% to 82.4% in the past year. The Fed is about to cut rates for the 3rd straight time on October 30th as the futures market sees a 92.5% chance of a cut.
The second point is the U.S. economy is less cyclical as we have pointed out when discussing the employment gains in the healthcare sector. As you can see from the chart on the left, 19.1% of final domestic demand came from the cyclical sector in Q2 2019.
This percentage never recovered the losses made during the last recession and during the late 1980s. From the mid-1940s to the mid-1980s, the percentage was in between the low 20s and the high 20s.
As the chart on the right shows, real final domestic demand growth in Q2 for cyclicals was only 0.2%. The economy would be at a standstill if it wasn’t for the non-cyclicals which have a negative correlation with cyclicals. Non-cyclicals had yearly real final domestic demand growth of 2.2% which is near the cycle high. There can still be recessions, but there needs to be a big imbalance to cause one, which we don’t see.