Early business recovery from a mini-2015 and 2016 recession

Federal Reserve Chairman Jerome Powell sees the U.S. economy generating highly optimistic expectations.

The jobless rate is at 3.9% and inflation is around the Fed’s goal of 2%. Historically, low unemployment has fueled inflation and sometimes has forced the Fed into hiking interest rates rapidly.

Many forecasters are predicting that these favorable conditions are likely to continue.

The US GDP looks like it can sustain 3+% GDP growth for some time.

The Fed has now recognized a mini-recession in 2015 and 2016. There was a sharp slowdown in business investment, caused by an interrelated weakening in emerging markets, a drop in the price of oil and other commodities, and a run-up in the value of the dollar.

The pain was confined mostly to the energy and agricultural sectors and to the portions of the manufacturing economy that supply them with equipment. Overall economic growth slowed but remained in positive territory. The national unemployment rate kept falling.

If 2016 was a recession then the recovery is only 2 years old and not 9 years

If we recognize the 2015-2016 weakness as a bear market recession, then it might change the age of the recovery. Do we reset the clock on the economic recovery?

Only US unemployment and GDP did not hit the definitions of recession.

There was barely any GDP growth for two quarters at the end of 2015. There was two-quarters of anemic GDP growth at the end of 2012. There was a very weak first three-quarters of 2011.

There is the definition that a bear market occurs if the S&P 500 falls 20%. This is a consistent term with a defined meaning because it can’t be manipulated. However, it is causing investors to lose sight of how weak 2015-2016 was. If you understand the weakness and change your mind from thinking the stock market is on a 2-year run instead of a 9-year run, you can allow yourself to be bullish if the facts such as private domestic fixed investment and capex spending growth support this narrative.

* Median S&P stocks were down 25% (the S&P had a 15% pullback)
* Russell 2000 was down 27%
* Japan stocks were down 29%
* Dow Jones was down 32%
* Emerging stocks were down 40%
* China stocks were down 49%
* Crude oil was down 76%

There was a pullback in Capex spending at the start of 2016.

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