Economics Weekly: Drifting Toward Recession

Tuesday, December 13, 2011

This week's ISM manufacturing data was further evidence of an economy that is still decelerating and slowly drifting toward recession. This weakness is taking place on the back of the ongoing trade dispute and the uncertainty it has created domestically and abroad, in addition to weakening global growth, Brexit uncertainty, emerging market debt issues, increasing volatility in financial markets, and the belief that we are already very close to the end of the economic cycle—one where policymakers may no longer have the adequate tools to soften the blow. Meanwhile, Professor Robert Shiller, who we saw speak this week, argues in his new book that "narratives"—or stories given increasing amounts of oxygen in the echo chamber of the mainstream media, social media, and the financial markets, such as the current one which has emerged around yield curve inversions and recessions—also have a very powerful self-reinforcing aspect to them.

As a result, in this week's Economics Weekly, it is worth looking back at the behaviour of several macroeconomic metrics around previous economic downturns.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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