Byron Wein of Blackstone says in his latest monthly essay that, despite the pessimism among institutional investors, we’re likely to see several more years of growth in the economy and stock indexes. Wein says that he can’t find any of the usual indicators of a bear market or recession, so he expects low volatility and recent conditions to continue for a while.
Strong business activity exists not only in the United States, but throughout the world: Europe should grow at close to 2% this year; so will Japan. The rates for China, and India will be close to 7%. The U.S. will benefit from continued strength in these key areas. One condition that invariably appears before a recession is an increase in cyclical spending as a percentage of GDP. This indicator has exceeded 28% before every recession going back to 1970 but is only at 24% now. Perhaps there is a secular shift in spending patterns toward non-cyclical services rather than goods that accounts for the drop, but we still should expect a pick-up in cyclical spending before the end of the cycle. Another factor dampening capital spending is that operating rates are only 77%. There is plenty of slack capacity and no great need for new plant and equipment.