On January 6th, I made some predictions for 2016. (link to post). Let’s look at some of them.
#1. I saw a higher probability than Tim Duy for a recession. He did not predict one. We do not have a recession yet. I wrote, “It is possible that the economy could stabilize by the end of the year if labor share continues to rise carefully and not too fast to spook business. The US consumer could come to the rescue and keep the business cycle alive.” Labor share is rising fast and spending is increasing. I still hold to about a 70% chance of a recession by the end of 2016.
#3. I saw 2016 as the year that unemployment stops falling and begins to level out. Is the 4.7% unemployment rate the bottom? That remains to be seen by end of 2016. My view is that we are seeing unemployment hitting its bottom level and will eventually go up from here over the next year.
#5. Inflation has not increased much since January of this year. I said it would keep increasing but with a caveat, “But even so, cascading economic weakness globally would weigh down inflation.” Global economic weakness is apparent in parts.
#6. I predicted that oil would stay in the range of $30 to $47 a barrel for 2016. It is gone up over $50, but has recently moved below $48. I see that $50 was the peak and that oil will move down from here as internal weaknesses in the US and global economies develop.
#7. I held to my view that the Dow would tend to move around the 17,500 level. It went to 18,000 but is now down to below 17,700. I see the stock market getting weaker as the year progresses.
#9. I predicted that the Fed would want to raise rates and probably would but with the caveat, ” The Fed can only raise rates very slowly when up against the effective demand limit of peaked profit rates. Still, I see that the Fed will have to think very hard about maintaining a pace to raise rates. The economy is more vulnerable than the Fed appears to think.” I think after holding rates steady today, the Fed realizes how vulnerable the economy is. Market participants get the message and are a bit more worried about the economy than they were last week.
10#. If productivity starts to rise, it is a sign for me that a recession is forming. So far in 2016, productivity is not rising so much.