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Does the recent weakening economic data suggest that the expansion is at risk?

Growth in the United States may have already peaked, but the economic outlook remains solidly expansionary.

Economy to slow, but growth to continue chart

Earlier this week, the National Bureau of Economic Research, the unofficial scorekeeper for U.S. business cycles, officially declared what has been widely believed for over a year: that last year’s recession ended shortly after it began — in May 2020. Not only was it the most rapid decline ever, but at just two months in length, it’s officially the shortest U.S. recession on record.

On the back of massive fiscal and monetary stimulus, the development and distribution of multiple COVID-19 vaccines, and pent-up demand that was unleashed as restrictions were lifted, the U.S. economy is now projected to reach its strongest calendar year growth since 1983. Those tailwinds are starting to fade though, and growth is expected to decelerate over the latter half of the year, while continuing to expand at an above-trend pace in 2022.

It’s important to differentiate between a mid-cycle growth slowdown and recession. Most recoveries begin with a rapid surge off the bottom that ultimately fades before the economy settles into a sustainable pace of growth. As illustrated above, that appears to be what is now underway.

The threat of a widespread outbreak of a new COVID-19 strain can’t be dismissed, but a return to the degree of lockdowns that shut down the economy virtually overnight in early 2020 seems highly unlikely. With monetary policy accommodation expected to be reversed only gradually over the next few years and a predisposition for continued fiscal spending, the economic outlook remains generally positive. The current slowdown was to be expected, but the expansion has plenty of runway left.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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