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The Recession May Not Be as Near as Many Believe

The U.S.and global economy are still expected to grow north of 2% in 2019. Services inmost developed countries remain strong and expanding, and the U.S. consumer –which comprises some 70% to total U.S. GDP – continues to spend at a healthy clip.

Small businesses, which are often considered a key growth engine for the U.S.economy, have been increasingly reporting labor shortages, where 57% of owners have said they’re hiring or trying to hire. A majority of these business owners have reported finding few, if any, qualified applicants for open positions.This points to strength in economic activity, and also points to a skilled labor shortage in the United States.

The U.S.consumer is another proxy for the health of the U.S. economy, and signs point to steady spending as we enter the holiday shopping season. Total retail sales for the June 2019 - August 2019 period was up 3.7% from the same period the previous year, with a particularly strong showing in July. In the latest ISM Non-Manufacturing report, the statement from the Retail Trade sector was that “business continues to pick up as we quickly approach Q4. Week by week, weinch closer to a much-anticipated holiday retail season, which requires not only last-minute buys, but a push to fill open positions.”

Finally,data in the broad labor market also offers evidence of the U.S. economy’s stability. Job growth as measured by non-farm payrolls remains strong, withreports last showing that the U.S. added 136,000 jobs in September, bringing the jobless rate (3.5%) – its lowest level in 50 years.

BottomLine for Investors

If the market delivers a positive turn of events – which we may already see early signs of with a potential trade “truce” – there could be an upside rally which effectively unwinds many of these defensive positions. We could see mean reversion in cyclicals.

The above spells bad news for the gold price in the next 12 months