The phrase "trend line growth" has gained traction in the media recently. What does it mean? And more importantly, does it forecast a potential recession?
If you sat in the cockpit of your most recent airline flight, you might have noticed that the plane is cruising at an average speed of 475 knots. When preparing to land, the pilot will slow the plane down to a speed of 150 knots. The decision to alter plane speed to 150 knots is safe and calculated. Although the pilot reduced the speed of the jet, the aircraft is in no danger of stalling at this slower speed. Problems arise only if the pilot slowed the aircraft down further to 120 knots, at that speed, the plane will stall, initiating a possible tragedy.
Since 2017, according to Trading Economics, United States GDP has grown nearly $1 trillion and the unemployment rate plummeted to the lowest levels this century (tradingeconomics.com). In light of these positive numbers, the economy has been outperforming its historic GDP annual growth rate of 2%. Even though this is good news for the economy, many experts are warning that the current GDP growth rate is above the “trend line growth” of 2% and inevitably will drop. General consensus among economic experts reflects this sentiment that a decline in GDP is likely in the near future.
While this seems like negative news, the silver lining is that the U.S. can possibly avoid a recession. A recession is largely viewed as GDP growth tumbling below 1.8%. Given the extraordinarily high GDP growth rate recently, the economy enjoys quite a bit of wiggle room before a decline in GDP growth morphs into a full-blown recession. If the economy is our airliner jet mentioned earlier, a slowdown in speed might be on the horizon. Yet, disaster caused by a stall can certainly be avoided. We are closely monitoring the current economic situation and urge you to contact us with any of your questions.