Goodbye 2010s - the first recession-free decade
World in Motion – Global equities blog

Goodbye 2010s – the first recession-free decade

The decade we have just lived through is the first in which the US, the world’s number one economy, has not experienced a recession1 . OK, so it was dominated by the long and slow recovery from the global financial crisis and propped up by central bank assistance in the form of QE, but there was no recession.

I think this chart from Bernstein is fascinating:

Berstein graph 1

Source: Bernstein/Goldman Sachs, December 2019

As can be seen, over the past century or so economic cycles are clearly becoming longer. This reflects the changing nature of the economy over that time, from a largely agricultural-based one, through the industrial revolution and on to a consumer/service-driven one. Over the past decade we have had three industrial slowdowns around the euro crisis, the 2014 oil price collapse and the current trade-induced swoon exacerbated by the coronavirus. All have produced economic slowdowns, but none of these events has triggered a recession (yet, in the case of coronavirus).

Quite simply, with consumption accounting for 70% of the economy 2 it is increasingly hard for an industrial inventory-driven downturn to tip the whole economy into recession without the presence of other economic imbalances, as we saw during the global financial crisis (GFC).

This is the longest economic expansion on record, even if it can be characterised as sub-par – as this chart shows:

Chart showing change in nominal US GDP during economic cycles
Source: Bernstein/Goldman Sachs, December 2019

And it triggers the question: are we due a recession? It is possible, but as we don’t see major imbalances in the economy, and the consumer is healthy, any recession, should one occur, is likely to be mild. In fact, our Fixed Income team is not forecasting one.

The other takeaway from the chart is that growth is slowing cycle by cycle – the reasons for which are many and varied, but it is a fact.

As investors today there are two challenges, both of which involve finding increasingly scare creatures. The first is yield, which I will leave to one side, though I commend you to look at the Threadneedle Global Equity Income Fund as a potential solution. The second is finding companies that can actually compound growth. As you can see in the next chart the proportion of companies that can deliver revenue growth in excess of 4% is declining, while the proportion of slow/no growth companies is increasing.

Few companies have high projected sales growth

Chart showing % companies by Sales Growth band

Source: Goldman Sachs 2020

Finding quality growth companies capable of compounding in this low growth economic environment is our task on the Global desk. Our success in this has rewarded our clients relative to the market over the years, and we believe it will continue to do so in the 2020s. Please read some of the other World in Motion blog posts to see how and where we find these competitively advantaged companies that we believe can compound. And, and if you want to join us in this mission we/your friendly Columbia Threadneedle sales person would love to hear from you.

2 March 2020
Neil Robson
Neil Robson
Head of Global Equities
Share article
Share on twitter
Share on linkedin
Share on email
Apple web badge
Spotify web badge
Listen on Stitcher badge
March 2020
Share article
Share on twitter
Share on linkedin
Share on email

Sources:
1 National Bureau of Economic Research, 2019
2 MarketWatch, Confident consumers keep U.S. economy plugging along, 30 October 2019

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at Risk. The mention of any specific shares or bonds should not be taken as a recommendation to deal.
This information is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating an investment with Columbia Threadneedle Investments. The analysis included in this document have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This information includes forward looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any of these forward looking statements will prove to be accurate. (Include if use logos) All intellectual property rights in the brands and logos set out in this slide are reserved by respective owners.
Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com

Related Blog Posts

22 March 2024

Japan: we’re more convinced than ever

Investors are increasingly turning their attention to Japan. We spent two weeks there and met dozens of companies. But which businesses look best placed?
29 February 2024

Unknown pleasures: A new era for equity investors #3

Portfolio positioning
28 February 2024

Unknown pleasures: A new era for equity investors #2

The shape of the new economy – from inflation and growth to government debt and equity valuations.

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Capabilities

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.