In August, U.S. President Donald Trump unveiled tariffs on an additional $300 Billion of Chinese goods.  Trump’s decision was made out of his own frustration at the slow pace of U.S.-China trade negotiations. 

One result of all of this tariff discussion is increased talk of a potential U.S. recession - which is not something that we like to see in the investment world!  We pay very close attention to U.S. recessionary indicators, as they are an important tool for evaluating the future direction of markets. Determining the likelihood of a recession provides me with additional insight when I consider portfolio changes to maximize returns and minimize risk in the current economic environment.  I would like to share the scorecard that I use to help analyze the potential for a U.S. recession. 

The scorecard below summarizes six economic indicators that have helped forecast historical U.S. recessions.

Each indicator, on the scorecard above, is analyzed and then scored as either expansionary (green), neutral (yellow), or recessionary (red).  Our best case scenario is for six expansionary (green) ratings, which we saw less than six months ago.  Since then, our yield curve inverted (meaning that short-term debt has a higher interest rate than long-term debt) - an early first indicator to point towards the possibility of a recession.  Last month, we saw the ISM Manufacturing Index (which tracks new orders from over 400 industrial suppliers) decline, causing it to enter neutral territory. 

Here is the good news… the remaining economic indicators continue to point towards U.S. economic expansion.  The major concerns for the global economy have slightly receded since August. The U.S.-China trade dispute has improved with both China and the U.S. offering olive branches ahead of upcoming negotiations later this month. China has exempted large importers from tariffs on U.S. pork and soy products, while the U.S. has mentioned rolling back its most recent round of tariffs. This improved backdrop puts the upcoming talks on a firmer footing, as the trade dispute has de-escalated since Trump's new tariffs in August. However, it could take some time for these two governments to finalize a deal since it may be more advantageous for President Trump to strike a deal closer to the election U.S. in November 2020.

As the global economic and political landscapes continue to evolve so does our approach to wealth management. Progressive investment strategies that adapt over time are a key component to continued economic success. If you would like to chat about how best to reach your wealth management goals, given the ever changing global environment, please feel free to reach out to me by clicking here.