In recent months, our measures of leading economic pressures have indicated the likelihood of an oncoming U.S. recession. Our view is based on the analysis of leading/coincident/lagging indicators, as well as more statistical methods that extract “unobserved components” from a broad range of economic indicators. The weakness developing in the most leading components of U.S. data closely reflects accelerating weakness in European data. European output continues in its steepest contraction since 2009.
In my view, the repeated monetary interventions of recent years have been an attempt to contain the unfinished effect of the 2008-2009 economic downturn. I believe that the global economy is moving into another recession because policymakers have not effectively addressed the debt problems that produced the first one, leaving the economy unusually vulnerable to aftershocks.