Is The Next Recession On Its Way?
Next Avenue
Chris Farrell

Here are two safe forecasts, the kind you can count on. First, the U.S. economy will sink into a recession. Second, no one knows when the recession will arrive. Taken altogether, these two “forecasts” have critical implications for managing your finances.

But first, let’s look at the economy.

President Donald Trump came in for some well-deserved ridicule proclaiming the economy “amazing” when the second quarter Gross Domestic Product (GDP) number came in at a 4.1% annual rate. Nevertheless, GDP growth is healthy, the unemployment rate is 3.9% and the labor force participation rate is climbing. Business and consumer confidence is high, too, and inflation is moderate. The Federal Reserve is confident enough in the economy’s resilience that it will likely raise short-term interest rates again next month.

We're In the 2nd Longest Economic Expansion

In short, the second longest economic expansion in U.S. history doesn’t show many signs of flagging yet.

That said, readers of The Wall Street Journal, The Financial Times, The New York Times and Bloomberg are seeing daily articles weighing the risk of recession. The commentary definitely leans toward the worried, although the favorite year of reckoning is around 2020 (which, if accurate, means the current expansion will become the longest on record).

The mood is best captured by the current Fortune coverline: The End is Near for the Economic Boom. “A significant slowdown or even recession is coming sooner or later, and it’s probably coming sooner than you think,” wrote editor-at-large Geoff Colvin. “It always does.”

What 'The Next Recession' Worriers Are Worrying About

What is the recession-is-coming crowd focusing on? The consensus expectation is that the economic boost from the corporate tax cuts will fade in coming quarters. The GDP numbers so far don’t show the administration’s promised surge in business investment, the kind that leads to higher, sustainable growth. Instead, as the economy shifts into lower gear, it will be vulnerable to a stumble or unexpected shock — with government, business and consumers debt at nosebleed levels. The Fed and other central banks are hiking short-term rates, always a tricky maneuver that can backfire. Meantime, the Chinese economy is showing signs of stress, and growth is faltering in most developing nations.

“Though the world economy is still experiencing a lukewarm expansion, growth is no longer synchronized,” Nouriel Roubini, an economist at the Stern School of Business at New York University known for forecasting the bursting of the housing bubble before the Great Recession, just wrote. “Economic growth in the Eurozone, the United Kingdom, Japan, and a number of fragile emerging markets is slowing. And while the U.S. and Chinese economies are still expanding, the former is being driven by unsustainable fiscal stimulus.”

Effects of a Trade War

Roubini and many other economists are deeply unsettled by the prospect of a spiraling trade war.

The Trump administration has imposed import tariffs on steel, aluminum and on many Chinese goods. (The U.S. has a temporary cease fire with the European Union.) The administration is now threatening 25% tariffs on $200 billion in Chinese imports, more than double the previous levy threat.

The economic impact from the tariffs has been muted and limited to certain industries — so far. But if the trade war of words turns into actual widespread tariffs and steep trade barriers, the global economy including the U.S. will be hit hard.

Charles Koch, the conservative billionaire industrialist, captured this worry last Sunday in a meeting with reporters when he said Trump’s tariff policy puts the economy at risk of a recession. “It depends on the degree,” he said. “If it’s severe enough, it could.”

A classic signal that a recession is lurking: when the yield on 10-year Treasury bonds is lower than the yield on three-month Treasury bills. That’s not happening yet. But today’s interest rate trends may be signaling slower growth ahead. ...

The Trump trade war is causing the next global recession?

Global recession may have a cycle.

Tim Neanderthal wrote on Jan 22^nd, 2019 at 11:31am:



That's correct

There's an uncanny repetition of recessions/depressions in a cyclical pattern, if the smaller recessions are disregarded, and there were many of those in the past three hundred years

The cycle we should be concerned about now is the hundred year cycle starting from the Mississippi bubble in 1720 to the present

In 1815–21 there was a mild depression. In 1920-21 there was a short painful depression

Indications are that there will be a short recession/depression heading our way very soon