As we enter the sixth year of the great equity bull market, it is understandable that many worry about the next bear market. Nothing goes on forever, to be sure. But as I see it, there is still no sign of impending recession. The Great Recession was devastating, and many parts of the world—particularly the developed nations of Europe—have yet to recover the losses they suffered. There is still plenty of idle capacity in the global economy, so we could still be due for at least several more years of recovery before there are any physical constraints on further growth.
The chart above includes data through December 2013. We know that the first few months of 2014 have been a bit on the slow side in most parts of the world, but a global expansion such as we have enjoyed for the past five years is not something that tends to collapse of its own weight—it takes some big shocks (e.g., very tight monetary and fiscal policy, spikes in energy prices) that we have yet to see.
Despite the worst winter weather in decades, February U.S. industrial production exceeded expectations (+0.6% vs. +0.2%) and posted a 2.1% gain over the previous 12 months, reaching a new all-time high. The Eurozone sovereign default crisis took a tremendous toll on its economy, but industrial production there has been recovering for the past year.
U.S. production of business equipment increased 2.8% in the past year, reaching a new all-time high. It's been a slow recovery, but the important thing is that conditions continue to improve on the margin.
German industrial production reached a new post-recession high in January, and has likely continued to expand.
Japanese industrial production is still more than 10% below its pre-recession highs, but it posted an impressive gain of 10.4% in the 12 months ending in January.
Global economic activity could be a lot better, but at least it is still improving on the margin.