What does the nominal GDP trend suggest?
During his latest webcast, “Turning Points,” Jeffrey Gundlach presented a chart that seems to be signaling a recession in the making. As the chart below shows, nominal GDP is down to levels matching those that have marked the beginning of earlier recessions in the US (SPY) (IVV) (VOO). Nominal GDP is currently at levels that were seen seven to eight years ago.
Marking the beginning of a recession?
The nominal GDP figure is at a level that seems to be marking the beginning of a recession, according to Gundlach. He did admit that nominal GDP is low because inflation is so low. However, the year-over-year US nominal GDP chart shows that the level is exactly where it’s been at the start of previous recessions in the US.
The US real GDP rate hasn’t provided any respite either. Since the financial crisis, we’ve seen real GDP levels to be stable or falling. Real GDP forecasts are also at an all-time low. For 2016, analysts estimate the US real GDP to grow by a meager 1.5%. The 2017 estimates are better at around 2.2%.
US economic recovery is lagging
In his investment outlook for September 2016, Bill Gross of Janus Capital (JNS) also talked about US economic recovery lagging. According to Gross, the ongoing recovery from the financial crisis of 2009 now lags behind any of the prior recoveries seen in the US (IWD).
Let’s now move on to Jeffrey Gundlach’s view on the rate hike.