spacer
 
spacer
 
spacer
by PlannerWeb 
spacer
  Latest News
Hot Issues
Get that money mindset this year | A 9-step guide to getting on top of your finances in 2024
Seven key charts for investors to watch - where are they now?
Is ‘keeping up with the Joneses’ holding you back?
Avoiding emotional bias in financial decision making
Countries producing the most solar power by gigawatt hours
How mindfulness can improve the way we work
Falling inflation - what does it mean for investors?
How to retire with greater confidence
The 1% rule – tiny changes add up to a BIG difference
Wheat Production by Country
How mindfulness can improve the way we work
2024 - a list of lists regarding the macro investment outlook
How to retire with greater confidence
The 1% rule – tiny changes add up to a BIG difference
Australian home prices up on supply shortfall, but at risk from high rates
Catching the kindness bug
Helping you loosen the purse strings
How much do we depend on China?
Negative gearing: Time to re-evaluate your strategy?
The threat of higher oil and petrol prices flowing from the war in Israel
How much longer will Australian household savings last?
Four reasons inflation may rise again... and why we think it won’t
Managing the rising costs of raising kids
Time to Spring clean your finances?
Has the RBA finished rate hikes?
3 graphs that explain what’s happening with Australian wages
Why an emergency fund delivers peace of mind
How do interest rates affect your investments?
The financial literacy gender gap and what to do about it
What the manufacturing downturn means for investors and the economy
Will these super changes affect you?
9 money mistakes people make in retirement
Why the need to lift productivity
Intergenerational Report 2023
Oldest Buildings in the World
The confusing economic picture
9 money mistakes people make in retirement
How much do you need to retire comfortably in Australia?
How to prepare financially for starting a family
Understanding home loans
Peak Australian home ownership
Your end of financial year super checklist
Tax-deductible superannuation contributions explained
Making superannuation downsizer contributions
9 ways to boost your super savings
Sell in May and go away? The worry list for shares (and the good news!)
Can I go back to work if I’ve already accessed my super?
Your 7-point retirement planning checklist
Super contribution rules when you’re in your 60s and 70s
What happens to my super when I move overseas?
RBA Review
Term deposit vs savings account: what’s the difference?
How Australia’s perceptions of wealth are changing in the 2020s
The benefits of reaching your 60s in Australia
Understanding Lender’s Mortgage Insurance (LMI)
Overview of the Federal Budget 2023 – 24
Five charts on investing to keep in mind in rough times like now
Five charts on investing to keep in mind in rough times like now
Blue collar, white collar - how the job you do can affect your financial stress
5 things to consider when saving for a house deposit
How to review your direct debits and save
Top tips on how to save money
The RBA hikes rates by another 0.25% - are we there yet?
How to avoid bill shock with bill-smoothing payments
When can I access my super?
How investment market volatility could affect your super
Can you teach your kids to defer gratification?
5 ways to create your own good fortune this Lunar New Year
Seven reasons why Australian shares are likely to outperform global shares over the medium term
Understanding fixed, variable and split rate home loans
Should you give your teenager a credit card
How to trick yourself into saving money
How much super should you have at your age?
Guide to your preservation age
How to budget in 3 simple steps
Review of 2022, outlook for 2023
A 2022 Advent Calendar for our clients
11 things to know about your super
What is equity and how can I use it to invest?
Shares may have bottomed
What is the retirement age in Australia?
Positive results from research into the value of financial advice.
Budget October 2022-23 - Comprehensive summary
Planning a career break?
Federal Budget: all the key points you need to know
Federal Budget 2022: Winners and Losers
7 easy ways to save for the future today
Federal Budget 2022/23 - Documents and Facts Sheets
The quick guide to redrawing on your home loan
Seven things for investors to keep in mind in rough times like these
Who is winning the streaming wars
Considerations for different retirement living options
Reviewing your personal insurance policy
How does the First Home Super Saver Scheme (FHSSS) work?
Australia’s productivity challenge – why it matters and what to do about it
The Countries that Consume the Most Beer in the World
9 tips for first home buyers
6 tips to reduce your debts before you retire
How catch-up concessional contributions work
Booms, busts and investor psychology
Largest wind power producers in the world
Emergency fund: What it is and how to build it fast
Eight tips to consider in times of volatility
State and Federal COVID-19 support---Aug 2022
Rising home loan interest rates explained - what you need to know
How to budget as interest rates rise
Inflation in the 70s - baby boomer fantasy or nightmare?
Largest natural gas produces by country from 1970-2021
How could the latest Budget impact your tax return?
8 indicators you may not be ready to retire
What is an offset account and how does it work?
How to invest responsibly and ethically.
National property prices fall for the first time since the pandemic
Australia’s new Government
Is my employer paying me the right super?
7 age pension traps to avoid
What is gazumping and how to prevent it happening to you
Total GDP Nominal by Country ( 1960-2050)
Can you use your pension to retire debt free?
Super changes that could affect you from 1 July 2022
Your super checklist for EOFY
9 money conversations to have with your partner
Australian housing slowdown Q&A
Largest cities in the world 1500 to 2100
Federal budget 2022: Winners and Losers
Why Australian interest rates are likely to rise and when
Living costs for retirees rise at fastest pace in 10 years
9 money tips if you’re having a baby
The US Federal Reserve starts raising interest rates
Federal Budget 2022 – Overview
Federal Budget 2022 and YOU - Part 1
Federal Budget 2022 and YOU - Part 2
The escalation in Ukraine tensions - implications for investors
Why it’s important to think about insurance ahead of retirement
Budget smarter with the 50/20/30 rule
What happens to my super when I die?
DGP by country since 1800
Tax-deductible super contributions explained
Share market falls - seven things for investors to keep in mind
Vaccination rates (Dose)
Understanding insurance in your super
How can refinancing your home loan save you money?
2022 - a list of lists regarding the macro investment outlook
Review of 2021, outlook for 2022
Bull vs Bear
How to save for retirement at every age
Five ways you can start to bridge the super gender gap today
5 money mistakes to avoid if you’re going guarantor
Our 2021 Advent Calendar.
How does a transition to retirement pension work?
Asian Economies (1960 - 2020)
The longer-term legacy of coronavirus
What you should know about creating your will and estate plan
What info is on my credit report and why does it matter?
The worry list for shares - how worrying are they?
Types of retirement pensions explained
7 ways to stay active and healthy in retirement
There’s an investor in all of us - and most of us already invest in one way or another
World's most productive countries
Why is Australian housing so expensive and what can be done to improve housing affordability?
COVID relief continues for retirees
Greenhouse gas emission by country since 1880
How does the First Home Super Saver Scheme (FHSSS) work?
Spouse super contributions - what are the benefits?
China’s growth slowdown and regulatory crackdown
Lockdowns and mental health
Salary sacrificing into super - how it works
Super bring-forward rules now apply to more people
The work test and work test exemption explained
Coronavirus continues to cause havoc globally and in Australia
Five ways to turn down the noise and stay focused as an investor
Considerations for different retirement living options
Videos and other resources for our clients
Keeping your super on track during a career break
Your guide to the super guarantee (SG) and rate changes
The never-ending coronavirus pandemic
Can I go back to work if I’ve already accessed my super?
2020-21 saw investment returns rebound
Tax Time Checklists - Super Funds; Individuals; and Company, Trust, Partnership
What is capital gains tax and when might I have to pay it?
6 steps to help you feel more positive about your finances
End of year (EOY) financial strategies
The 2021-22 Australian Budget - Analysis
Videos to help understand financial planning topics.
Investing on behalf of your kids
Super contribution caps are going up from 1 July 2021
Protecting your loved ones
Federal Budget 2021 - Overview
Building a more secure and resilient Australia
Federal Budget 2021 - Health
The return of geopolitical risk? - what to watch over the remainder of 2021
Relationship break-up entitlements when you're in a de facto
What do you need to think about when deciding when to retire?
6 steps to building good financial habits
RBA on hold and likely to remain easy for a long while yet as full employment gets more of a look in
More Aussies look to buy property and refinance
A new crypto world is emerging - the non-fungible token
Saving for your child's future
5 tips for creating your own good fortune this Lunar New Year
A broad range of Calculators.
Shares have had a very strong rebound since March last year so where are we in the investment cycle?
ATO Small Business Newsroom
Many in the dark about retirement
Transfer balance cap set to increase to $1.7 million
How to rebuild your super after a COVID-19 withdrawal
Financial wellness in 2020 - how did yours compare?
The global economy and investment markets this year
ASIC sounds warning around high-yield bond scams
Is $1m enough to retire?
How much super should I have at my age?
Tips for parents who became the bank of mum and dad
How to 2020-proof your finances
Vaccination rates as they happen around the world
2021 - a list of lists regarding the macro investment outlook
2020 - the year that united us
Videos and other resources for our clients
How to review your direct debits and save
Majority of working Aussies to benefit from personal income tax cuts
2020 is coming to an end. Phew!!
Review of 2020, outlook for 2021
The right times for financial advice
Is your home loan still right for you?
3 golden rules that make saving for retirement easier
How to budget for your social life in retirement
Still The Lucky Country
Comprehensive list of COVID-19 initiatives and packages.
Understanding the Age Pension income and assets test
Considerations when downsizing your home
Ways to help reduce your debts before you retire
How to identify (and beat) your spending triggers
Budget 2020 - A very comprehensive break down.
Budget 2020 - Fact Sheets
Budget 2020 - At a Glance, Overview, Outlook
JobKeeper extension – changes implemented
Australia's "eye popping" budget deficit and public debt blow out
The economics of COVID-19 lockdowns
How mindfulness can improve the way we work
Taking control of your personal finances in a COVID-19 world
September update of latest COVID-19 initiatives.
Seven reasons why the trend in shares will likely remain up, albeit with bumps along the way
Market outlook Q&A
Changes to super contribution rules for over 65s
COVID-19: How long may your super savings take to recover?
Boost your super in the lead up to retirement
4 ways to help prepare your finances for a recession
JobKeeper - Latest Update
The fiscal cliff is more likely to be a fiscal slope
Australian economic and fiscal update
Protect yourself from COVID-19 related scams
The economic hangover of COVID-19: how long will it last?
How to rebuild your super after a COVID-19 withdrawal
Market update - July 2020
Investment options and retirement
Extra Tools & Resources for our clients.
The Australian economy and recovery from COVID-19
Digital payments and online banking for older Aussies
The coming surge in Australia's budget deficit and public debt due to coronavirus
10 medium to longer-term implications from the coronavirus shock
Thinking about insurance ahead of retirement
Gifting and financial generosity during coronavirus
Diversification - why it matters now more than ever
The value of financial advice
Our Website, your resources
Light at the end of the coronavirus tunnel
Market update
Changes to pension drawdown and deeming rates
Preserving retirement saving during COVID-19
How investment market volatility could affect your super
COVID-19: Early Childhood Education and Care Relief Package
The coronavirus pandemic and the economy – a Q&A from an investment perspective
Money challenges women face
Data so large it's hard to comprehend.
Is coronavirus driving a recession, depression or an economic hit like no other?
Holding your nerve – why retirees fear a market plunge
Historic $130bn wage subsidy to cover 6 million workers
Stage 2 – Covid-19 stimulus package.
Covid-19 Update - Small Business
PM launches $17.6 billion virus stimulus plan
The plunge in shares – seven things investors need to keep in mind
Three reasons why low inflation is good for shares and property
Can refinancing my home loan save me money?
Expected GDP by country 2010 to 2100
Super investment options – what’s right for you?
Life beyond work
Statistical picture of Australia - Update
A resource hub for our clients.
Market Update
Real Time World Population Growth - Wow!!
Dividends explained
Start 2020 with a best snapshot of Australia.
5 tips for green investing
Make Australians save again
Bushfires and the Australian economy
Grow your super in the new year
Australia by the Numbers
How to create realistic goals…… and stick to them.
5 days to get your finances in order
Our Advent calendar for 2019
5 reasons why I’m not so fussed about the global outlook
Superannuation changes
You'll be the life of the party when armed with this information!
7 tips to improve your financial wellness
Rebooting for retirement
5 reasons why the A$ may be close to the bottom
Resist today, relax tomorrow
Market Update 30 September 2019
How much superannuation is enough?
All Australia's vital statistics - October 2019
6 new financial videos
Boost savings with compound interest
High times for low interest rates
Market Update - September 2019
Will the world slip up on oil again?
Australia by the numbers - September 2019
Spending money in a cashless world
Dealing with being cash poor and asset rich
Saving for a rainy day
Market update
Access to more resources and tools than most websites.
Nine reasons why recession remains unlikely in Australia
Can I go back to work if I’ve accessed my super?
How's Australia doing statistically?
Protecting your super package.
Making the most of record-low interest rates.
Market Update 2019
How the top 10 global companies have changes since 1998
The longest US economic expansion ever
When can I access my super
Australia by numbers – Update
How to retire early
How to play catch up with your Super
Inflation undershoots in Australia
9 money mistakes to avoid in retirement
What a financial planner does to help.
Australia's vital statistics.
What kind of money parent are you?
How to save money
Federal Budget 2019 - Overview
How the 2019 Federal Budget affects you
New Global growth slowing, plunging bond yields & inverted yield curves
Women and Money
Market Update - March 2019
The problem with getting to 53 years of age.
How to avoid a travel debt hangover
Things to avoid as a newbie investor
Budget Time - How's Australia going?
Most older Aussies prefer home care over a nursing home
Why growth in China is unlikely to slow too far
10 money conversations to have when your relationship heats up
Australia slides into a 'per capita recession'
6 steps to get your money stuff together
All you need to know about how Australia is going.
Australian housing downturn Q&A
6 ways to reduce your credit card debt once and for all
5 life insurance questions you've always wanted to ask
2019 a list of lists - regarding the macro investment outlook
Part 4 - The major benefit of ‘behavioural coaching'
How to adult—a quick guide to personal finances in your 20s
How Australia is performing.
The Australian economy in 2019
Holiday budgeting tips— How to avoid a travel debt hangover
Australia - a comprehensive run-down of our vital statistics.
The Fed and market turmoil - the Fed turns a bit dovish but not enough (yet)
12 ways to avoid waste this Christmas
Rising US interest rates, trade wars, the US midterm election results, etc
Our Advent calendar for 2018
Responsible and ethical investing
What are the 3 biggest living expenses for households?
Your Adviser and Behavioural Coaching
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
Information needed to be the BBQ expert.
Would you like to retire by 40?
The property cycle and the economy
How financial advice helps create wealth.
7 money personalities you may identify with or want to avoid
Are shares expensive?
How's Australia doing statistically?
Super investment options – what’s right for you?
Here's how to lead a happier life
What happened to all the worries about rising inflation and bond yields? Goldilocks, tariffs, Turkey & other things
Is it better to buy an investment property or home first?
Nine keys to successful investing
This information will turn you into a fireside expert.
How Australians will use their tax return
Lessons from the blue zones: secrets of a long life
Trumponomics and investment markets
Tools for budgeting, cash flow, Super and more ….
How tax deductible personal super contributions work
How much super should I have at my age?
The rise of the gig economy and side gigs (thanks to technology)
Statistics for all Australians
Watch out for tax scams
Now’s the time for tax planning
After the Australian household debt and east coast housing booms
Why it pays to contribute to your partner's super
Australia by numbers – Update
How to deal with financial stress – nearly 1 in 3 affected
Federal Budget 2018 – Overview
Your Budget
4 components of our 2018 Federal Budget
US China trade war fears – Q & A
Tools to help you manage your financial position are available on our site.
7 ways to boost your super
Australians reveal their priority goals
Australia by numbers – Update
Your retirement questions answered
How to make money by turning your unwanted goods into cash
Our website is really our digital office.
Bitcoin – is it really for you?
Spread your money, reduce risk
Love and money? It’s not about control
The pullback in shares - seven reasons not to be too concerned
Australia. All you need to know to be the expert.
Australian’s love affair with debt - how big is the risk?
5 ways to keep a cool head in a falling share market
2018 – a list of lists regarding the macro investment outlook
Sports lovers enjoy better financial fitness
Where Australia is at. Our leading indicators.
The year that was and the year ahead
Add some extra cash to your New Year
New year, new financial resolutions
Our Advent calendar for 2017
Where are we in the global investment cycle?
Australia's vital statistics
12 ways to enjoy summer without spending a fortune
One in three Aussies travel without protection
Digital payment options could see you spend more this Christmas
If you’ve always thought property prices only go up…
Will Australian house prices crash?
Where are we in the global investment cycle and what's the risk of a 1987 style crash?
Money steps for women
Resources on our site to help you, your family and your friends.
Australian Dietary Guidelines and healthy eating chart (PDF)
How to retire, your way
Prepare for retirement without missing out today
Be the boss of your cash
The Australian economy bounces back again
Should you lend money to family?
Money mistakes people make in their 50s and 60s
Australian Dietary Guidelines and healthy eating chart (PDF)
Eight steps to improved cashflow... and lifestyle
Powerful Budgeting, cash flow and Super Tools available on our site.
5 ways Australians will use their tax return this year
Australia's leading causes of death - ABS
The threat of war with North Korea
Six traits of Australians living the dream
The break higher in the Australian dollar is likely to be limited
Money can buy you happiness, you’re just spending it wrong
Key Economic Indicators, 2017 – updated
Helping your kids buy a home
From Goldilocks to taper tantrum 2.0
What’s your debt age?
Doing a budget is a good idea but ....
Planning is the key to making it financially
What to do when you come into money
Managing your money when you move in together
Reduce your bills with these household items
It pays to contribute to your partner's super
How to cope with losing independence
Transition to retirement income streams
The Australian economy hits another rough patch
Watch out for tax scams
The three core pillars of this year's budget
Federal Budget - 2017-18 - Overview
Federal Budget - 2017-18 - Budget documents
Make the most of the current super caps
Five, four, three… it’s not too late to get more in super
Super changes are coming
What’s your debt age?
Australian cash rate on hold
Super changes this financial year - Dr Shane Oliver - video
The door is closing on super’s current caps
Is Donald Trump's honeymoon with investors over?
Estate planning and why you need a super plan
What does a comfortable retirement look like?
Give your career a health check
Super changes from July 2017
Changes to the Age Pension assets test
Keep your money safe over the silly season
Looking ahead at 2017
Review of 2016, outlook for 2017 - looking better despite the political noise
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
54.2 million worries
Five tips for happy healthy ageing
Thinking about managing your own super?
Sending more to the tax office than you should?
Government pulls back on proposed changes to super
Market Update - What to consider when investing in a low return world
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
Oliver's Insight - Megatrends
Value of Advice
A growing family doesn't have to blow the budget
Blinded by optimism
Thinking about managing your own super?
The investment outlook - it's not all that bad!
What’s your biggest obstacle to financial success?
Ageing Parents
Should you own the roof over your head?
Be a senior entrepreneur on your own terms!
Brexit and other key developments
Brexit wins
Commentary on major issues - AMP
Five money habits for a happy financial year
Are grandparents giving too much?
Remember to factor in parental subsidies at tax time
2016-17 Federal Budget - AMP
2016 Budget in detail
How (and why) to talk to your adult children about insurance
Procrastination: Just do it. Eventually.
Why Australian property won't collapse
The Lucky Country holding up pretty well
Have we reached the bottom?
The evolution of the Chinese consumer
Retirement rolls around faster than you think
Pressed for time?
Changes to the Age Pension assets test
Women are building financial intelligence
Heirlooms no more
Initial market falls precede stronger returns - Shane Oliver
What exactly is income protection insurance and do I need it?
A rough start to the year, which could have further to go
Aged Care - Changes to Assessment of Rental Income
A bump in the road, then a new start
New year, new start – are you ready for retirement?
Review of 2015, outlook for 2016 - Dr Shane Oliver
We wish you a Merry Christmas for 2015 and a Happy New Year
Go easy on the plastic over Christmas
Resolutions for a wealthy future
The Australian dollar doing what it normally does - overshoot. Dr Shane Oliver
How to manage volatility in a low return world
The Australian economy - more help will be needed. Dr Shane Oliver
Insurance through my super
Four tactics to build an investment portfolio
The demand for global infrastructure
Help achieve your investment goals with dynamic asset allocation
The Power of Budgeting
Jump retirement hurdles with a coach
Preparing for the time of your life
A Super Loan for all reasons
Making a smooth transition
Australian Government - Budget 2015
Budget 2015 - some professional opinions
Achieving a comfortable retirement
Is off-the-plan on the money?
Should I take my super as a lump sum or not?
Do you have a key person in your business?
Tips for success in a competitive job market
All you need to know about buying at auction
To sell or not to sell?
Saving in a material world
The longest US economic expansion ever
Does this mean recession is around the corner?
 
Dr Shane Oliver
Head of Investment Strategy and Chief Economist
AMP Capital 


       

 

Key points

 

  • Where the US economy goes is critical to the outlook for shares, including for the Australian share market. 
  • While the yield curve is flashing warning signs and issues around trade and Iran could cause short-term volatility, the excesses that normally precede US recessions – a spending boom, surging private debt and/or rising inflation/tight monetary policy – are absent. 
  • This along with the combination of easing monetary conditions globally, is likely to see growth continue suggesting that US - and hence global and Australian - shares are likely to be higher in 6-12 months’ time. 

 

Introduction

 

A common concern ever since the Global Financial Crisis (GFC) ended a decade ago is that the next recession is imminent. This concern has become more pronounced recently as yield curves – ie the gap between long-term bond yields and short-term borrowing rates - have inverted (or gone negative) as in the US. This concern has taken on added currency now that the US economic expansion is the longest on record. Surely it must be living on borrowed time? 

 

This matters a lot. The US is the world’s biggest economy in US dollar terms (at 24% of world GDP), its share market is around 56% of global share market capitalisation and being central to the world’s financial system it sets the direction for global share markets, including Australia’s. What’s more, while share corrections (say falls of 5-15%) and even mild bear markets (with say a 20% decline that turns around quickly) are common, the key driver of whether they turn into a major bear market (where shares fall 20% and a year later are down another 20% or so like in the GFC) is whether we see a recession or not – notably in the US (see the table in Correction time for shares?). So, whether a US recession is imminent or not is critically important in terms of whether a major bear market is imminent. 

 

Longest but not the strongest

 

The cyclical bull market in US shares is now over ten years old. This makes it the longest since WW2 and the second strongest in terms of percentage gain. And according to the US National Bureau of Economic Research the current US economic expansion that started in June 2009 is now 121 months old and compares to an average expansion of 58 months since 1945. This makes it the longest on record (since 1854). See the next two tables. But it’s noteworthy that it’s not the strongest. In fact, GDP and employment growth through this expansion have averaged around half that seen in the average post war expansion. Both have been the second weakest. 

 

Cyclical bull markets in US shares since WW2

 

Cyclical share bull market, S&P 500

Prior bear market % fall

Total bull mkt, % gain

Duration in months

June 49-Aug 56

-30

267

86

Oct 57-Dec 61

-22

86

50

Jun 62-Feb 66

-28

80

43

Oct 66-Nov 68

-22

48

25

May 70-Jan 73

-36

73

31

Oct 74-Nov 80

-48

126

73

Aug 82-Aug 87

-27

229

60

Dec 87-Jul 90

-34

65

31

Oct 90-Mar 00

-20

417

113

Oct 02-Oct 07

-49

101

60

Average

-33

149

57

Mar 09-?

-57

346

124


Data is for the S&P 500. A cyclical bull market is defined as a rising trend in shares that ends when shares have a 20% or more fall. It could be argued that the 20% fall in July to October 1990 was not really a bear market as it was too short & shares surpassed their prior highs within a year. If it was not really a bear then the latest bull market becomes the second longest.
Source: Bloomberg, AMP Capital.


US economic expansions since WW2


 


Economic expansion

Average GDP growth, % pa

Employment grth, avg % pa

Duration in months

Oct 45-Nov 48

1.5

5.2

37

Oct 49-Jul 53

6.9

4.4

45

May 54-Aug 57

4.0

2.5

39

Apr 58-Apr 60

5.6

3.6

24

Feb 61-Dec 69

4.9

3.3

106

Nov 70-Nov 73

5.1

3.4

36

Mar 75-Jan 80

4.3

3.6

58

Jul 80-Jul 81

4.4

2.0

12

Dec 82-Jul 90

4.3

2.8

92

Mar 91-Mar 01

3.6

2.0

120

Nov 01-Dec 07

2.8

0.9

73

Average

4.3

3.1

58

Jun 09-?

2.3

1.4

121


Source: National Bureau of Economic Research, AMP Capital.


Absence of excess

 

Numerous growth slowdowns and recession scares – notably around 2011-12, 2015-16 and since last year - and post GFC caution have kept this expansion slow. A key lesson of past economic expansions is that “they do not die of old age, but of exhaustion”. The length of economic expansions depends on how quickly recovery proceeds, excess builds up, inflation rises and the central bank tightens. The current US economic expansion may be long, but it has been slow. As a result, it’s been taking longer than normal for excesses that precede recessions – around cyclical spending, debt and inflation - to build up. First, cyclical spending in the US as a share of GDP remains low. In particular, there has been no “boom” in spending on consumer durables, business or housing investment resulting in a glut that needs to be worked off as occurred prior to all of the recessions in the last 50 years. All are around or below long-term averages as a share of GDP, in contrast to highs seen prior to past recessions. Basically, no boom = no bust! 

 

US cyclical spending is still low as % GDP


 

Source: NBER, Bloomberg, AMP Capital

 

Second, growth in private sector debt has been modest and well below the surge seen prior to the recessions of the early 1990s, early 2000s and 2008-09 as household debt growth has been weak. While corporate debt is up, the ratio of profits to interest payments is well above average and the ratio of corporate debt to assets is low. (Yes, public debt to GDP in the US is a concern but high public debt has not been a precursor to recession and the public sector’s taxing and money printing abilities mean it’s a totally different risk to excessive private debt.) 

 

Finally, there is no sign of the surge in inflation that traditionally precedes recessions. Sure, the labour market has been flashing warning signs with unemployment and underemployment having fallen sharply, warning of a wages breakout and inflation pressure. 

 

US unemployment is low, but wages growth still soft


 

Source: NBER, Bloomberg, AMP Capital

 

However, there is arguably still spare capacity in the US labour market (the participation rate has yet to see a normal cyclical rise) and wages growth around 3% remains very low. The last three recessions were preceded by wages growth above 4%. And industrial capacity utilisation at 78% is well below levels that in the past have shown excess and preceded recessions. Reflecting this, along with intense competition which has been accentuated by technological innovation, core inflation has fallen below target. 

 

The Fed Funds rate is still low relative to inflation & growth


 

Source: NBER, Bloomberg, AMP Capital

 

So, while the Fed has raised interest rates since late 2015 it has not slammed the brakes on with tight monetary policy. Past US recessions have been preceded by the Fed Funds rates being well above inflation and nominal growth, whereas that’s not the case now. See the last chart. And given perceived risks to growth and the concern that it will be easier to deal with a rise in inflation than deflation, the Fed is now moving to cut rates again anyway. 

 

The bottom line is that the excesses that normally precede US recessions – a spending boom, surging private debt and/or rising inflation/tight monetary policy – are absent. So while US economic expansion may be long in the tooth it’s far from exhausted. 

 

But what about the inverted yield curve?

 

The inverted US yield curve that started in the last few months is certainly a concern as they have preceded past US recessions. 

 

US yield curve inversions and recessions


 

Source: NBER, Bloomberg, AMP Capital

 

However, there are several reasons not to be too concerned. First, the lag from yield curve inversion to recession averages around 15 months (which takes us to second half next year), there have been numerous false signals and following yield curve inversions in 1989, 1998 and 2006 shares actually rallied. Second, various factors may be inverting the yield curve unrelated to growth expectations including still falling long-term inflation expectations, low German and Japanese bond yields and higher levels of investor demand for bonds post the GFC as they have proven to be a good diversifier to shares in times of crisis. Third, the retreat from monetary tightening has been a factor behind the rally in bonds but this is positive for growth. Finally, other indicators are not pointing to imminent recession – as noted above we have not seen the sort of excess that normally precedes recession. 

 

The bottom line

 

Issues around the trade war and tensions with Iran certainly pose a risk to US growth and could drive short term volatility in share markets. But the combination of easing monetary conditions globally, the removal of caps on US Government spending for next year (which threatened a mini “fiscal cliff”) as part of a deal to suspend the debt ceiling and the absence of the excesses that contribute to recessions would suggest that US - and hence global and Australian - shares are likely to be higher in 6-12 months’ time. 

 

Shares up and bond yields down – which is right?

 

This brings us back a puzzle that has worried some this year: share markets are up but bond yields are down…surely one market must be wrong? But this occasionally happens in the investment cycle. Basically, shares having fallen last year on growth fears are looking through short-term growth uncertainties and focusing on lower for longer interest rates and bond yields making shares relatively cheaper and the likelihood that monetary and fiscal stimulus will ultimately boost economic growth. By contrast bonds have been focussing on falling inflation and lower for longer short-term interest rates. So, there is logic behind both shares and bonds rallying at the same time. Ultimately though if global growth picks up over the next 12 months, bond yields will start to rise again – but it’s likely to remain gradual and constrained. 

 

 


Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.


 

 

spacer
Charter fpa Logo