In the United States, our analysis of the economic cycle sees the expansion continuing for at least another 15 months.
The unemployment rate is sitting at an end-of-cycle level (see Figure 12), but as both inflation and wage increases remain modest, the Fed can steadily normalise its still-loose monetary policy. At the current pace of rate hikes, monetary policy will start to turn tight in the second half of 2019.
Coincident indicators are pointing in the right direction. Weekly jobless claims are near to their 1970s lows and the ISM manufacturing index is at its highest since 2014.
Nonetheless, and in spite of buoyant consumption levels, the share of household cyclical components in GDP (a leading indicator that includes durable goods purchases and residential property spending) has now stabilised at a historically low level (see Figure 13).
Residential property spending in particular is showing signs of weakness. Regular property price rises combined with higher mortgage rates are squeezing affordability for homebuyers, although not to the low level seen in 2006 (see Figure 14).
Economic fundamentals remain healthy, with relatively low inventory levels and moderate household debt levels. It is doubtless more a matter of the property market adjusting to higher interest rates, as was the case during the 2013–2014 stagnation, than of any long-term downturn (see Figure 15).
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