Business Cycle Analysis Reveals Economic Rebound and Growth Ahead
The analysis of business cycle indicators suggests that the economy has likely bottomed out and is poised for a rebound throughout 2024. This assessment is supported by a growing body of evidence, including:
Stabilizing Hard Economic Data
Hard economic data, such as industrial production, employment, and GDP, have shown signs of stabilizing and forming a bottom.
Recovery in Manufacturing Sector
Manufacturing production, capacity utilization, and employment growth indicate that the sector has passed its low point.
Positive Manufacturing Outlook
Soft economic data from the manufacturing sector, which provides a more timely view, suggests that the industry has navigated its trough and is now poised for an upturn.
Services Sector Stabilization
Services consumption and employment have stabilized, while the services PMI has exited its downtrend.
Consumer Activity Improvement
Consumption and retail sales have stabilized, as has disposable income.
Upward Trend in Leading Economic Indicators
Leading economic indicators, which tend to predict future economic performance, have turned up significantly, suggesting an acceleration in growth.
Bank Lending Easing
Bank lending standards for commercial and industrial loans have eased, indicating an upcoming boost to industrial production.
Robust Household Net Worth
Household net worth suggests that GDP growth may bottom around Q4 2023 to Q1 2024.
Conference Board’s Leading Economic Indicator
This short-term leading indicator has inflected higher over the past six to 12 months, pointing to a pickup in economic growth.
ISM Manufacturing PMI
The ISM Manufacturing PMI, a highly reliable indicator of the business cycle, is also signaling an acceleration in industrial production and GDP growth.
Global Economic Recovery
Global growth indicators, including the OECD Leading Indicators for the world’s major economies, suggest an improvement in the global business cycle, which could further support US economic growth.
China’s Recovery
China, while not expected to boost global growth as it has in previous cycles, is no longer a drag on the world economy, as its balance sheet recession is improving.
Supportive Global Liquidity
Global liquidity, which tends to lead the business cycle, has been trending higher, providing a favorable environment for economic growth.
Positive Housing Market Indicators
Building permits and residential investment are showing signs of recovery, which could provide a strong growth impulse for the economy.
Growth Outlook Supports Risk Assets
The expansionary phase of the business cycle is historically favorable for risk assets, such as stocks and commodities. The current strength in economic data and the bullish outlook for the business cycle support the recent market strength in these assets.
Potential for Rotation within Equities
While some equity sectors, such as technology, may have priced in much of the expected growth, more cyclically sensitive sectors, such as materials and industrials, appear to offer more upside potential as the economy expands.
Commodities Poised for Growth
Commodities are typically positively correlated with economic growth, and the business cycle outlook suggests that they could continue to benefit from the economic upturn.
Positioning Considerations
While the business cycle outlook remains favorable, investors should be aware of potential overpricing in certain market sectors and consider a rotation into more undervalued and growth-oriented areas.
