“Managing Global Asset Allocation Portfolios In Challenging & Changing Times”, Chris Watling, Longview Economics

In the USA, the Trump administration's fiscal, immigration and tariff policies are making it more difficult to identify the underlying economic trends, most notably in the labour market data and in the international trade statistics.

Do you expect the US economic growth to remain resilient, or is there a high risk of a recession in the next year or so?

Well, that's a great question and and actually feeds straight into one of our key topics, which we've been pushing for the last few months, which was kind of two pronged.

But firstly, if you look backwards in the US economy, I think there's what I call a fragility to the economic construct, a fragility to the growth.

And what I mean by that is the idea that really kind of all roads lead back to A.I., I mean, if you look at the underlying data on the consumer, you know, household disposable personal income in real terms is basically running at around zero.

So there's no real income growth.

The savings ratio is down.

There's little job creation, not really much at all.

So there's a real fragility and a real question mark about why is consumption growing in the US when there's no income growth? And of course, the answer is the wealth effect.

And the wealth effect, of course, is all about the stock market.

It's all about the earnings in the stock market, it's all about AI.

So there's that, and then there's CapEx growth within the economy, which is about AI, and so on and so forth, profit growth in the stock market.

So eventually, all roads lead back to AI.

So there is this sense of fragility.

But having said that, what we see now, if you look at the US economy, is there seems to be a broadening of that growth.

So for the last few years, it's been quite narrow and very dependent on the ai theme but it looks as though that's now starting to broaden out we're getting a credit cycle come through you look at bank credit in the us it's growing about six seven percent we're getting an industrial cycle in the us that's kind of a new a new trend in 2026 industrial production have been pretty flat for the prior two or three years and has started picking up over the course of the first half of this year.

And we may be starting to see a labour market turn up.

It sort of looks like it on the smooth moving averages.

It's not totally clear.

It's very mixed, the labour market data at the moment.

But there's definitely a bit of evidence that's starting to tilt that way.

So if the economy is broadening, then I think the recession risk is really pretty low in the near term.

And it does need the AI hope trade to continue.

to encourage the AI capex.

But assuming that continues, and I guess we'll get onto that, but assuming that continues, then I think this economy looks like it will surprise to the upside relative to consensus GDP forecasts in the US in 2026 and 2027.