Talk of a recession certainly heated up at times throughout the third quarter, especially when we saw the yield curve invert.

But are we really headed towards a recession?

The chart below shows personal consumption expenditures versus the leading economic index.  The first three charts show the 6 quarters before a recession occurred.  In each, personal consumption was still positive though declining before the recession officially started.  In each, the leading economic index were falling in each of the periods prior to the official start of the recession.  However, if you look at the last 6 quarters, the chart on the right, both personal consumption and the leading economic index are both positive.

Therefore, if we were really headed towards a recession, one would expect the leading economic index to be negative (though it is falling).

Global growth is also slowing, which isn’t benefiting from the uncertainty around the trade tensions that rose again in the third quarter between the US and China.

In the US, the economy seems to be on solid, but not great, footing.  Just after quarter end, the US unemployment rate came out at 3.5%, matching a rate last seen in December 1969!  And US consumers are still doing what we do, consuming!  This is all positive for the economy.

However, there will continue to be shakiness as the global economy is slowing, continued uncertainty around trade and ongoing global political instability. Meanwhile low/negative rates leave central banks with fewer options if (when) we hit a soft spot in the economy.

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