Is U.S. economy facing recession? Maybe yes, maybe no, maybe…
By Carlo Barbieri
Economists are fond of studying financial history and, in particular, the cyclical nature of recessions and recoveries over the years in America.
Researchers already note that the United States is coming up on one of those periodic recession periods — or at least a monetary course correction — in the near future. These rectifications usually happen every five to seven years, and the current spell of good financial accounts is beginning to reach that milestone. We can demonstrate these recession cycles in statistical form. (See Chart 1)
GDP growth, 1923-2009
How likely is the imminent arrival of a recession? We’re putting our money on the likelihood that achievements in the stock market, commercial/industrial sector, domestic and overseas trade, and the real estate market will continue their healthy pace with little abatement.
Consider what the U.S. has going for it. First are the changes in American tax regulations that are attracting a large volume of new foreign entrepreneurs and bringing back American companies that moved abroad to avoid being taxed on profits obtained outside the U.S.
Secondly, new trade agreements worked out by President Donald Trump. The incumbent president literally canceled multi-lateral agreements that were always uninteresting for the U.S. and went on to make settlements crafted with U.S. interests in mind with countries and their populations.
The situation is also influenced by new restrictions on illegal immigration and the quest for more qualified and better-paid emigration.
With this, Americans started to gain their own advantages and increase their purchasing power, thereby improving the economy as a whole.
The outlook with these and other factors is that the U.S. will grow at a rate in excess of 3% for at least the next three years.
Many sectors will receive substantial investments — the infrastructure, for example, slated to pick up an investment of more than $1 trillion in the next 10 years.
Not everyone feels a recession is in the far-off future. Former Reagan Budget Director David Stockman predicts an earlier market crash. “I have no idea when [it will come], but I would say we’re in the final days when you look at the firestorm that’s coming down the road.”
“What you do is, put it in cash and then you wait for the correction and then you buy low and ride the next cycle because that’s the way the economy works,” Stockman said during an interview with FOX Business’ Stuart Varney.
Although the market is still in the midst of its longest bull-run yet, Stockman warned that, because of a tightening monetary policy by the Federal Reserve and an international trade war, the growth can’t last.
“This is what an economy looks like at the end of a business cycle when it’s about ready to roll over into the next recession,” he said. “That’s where I think we are right now. Not the rearview mirror, but looking ahead.”
More importantly, and likely with more vigor, policymakers are trying to keep the expansion going as long as possible. I believe they recognize that if we get into a recession, we do not have the traditional tools to get out of it. The usual pattern for the U.S. economy when it is in a recession is either for the Federal Reserve to lower interest rates to stimulate business activity or the Keynesian method of providing fiscal stimulus.
While economic indicators are strong, they were also strong just before past recessions, researchers warn. And anyone who thinks that a recession is unlikely should keep in mind that it also seemed unlikely to professionals trained to predict recessions 148 out of the last 153 times.
Here’s another factoid to muddle your mind. The last three great recessions — 1929, the early 1990s and 2007-2009 — all began during the month of October.
Besides all major events taking place in the U.S economy, it cannot be left outside the analysis the following upcoming midterm elections. When the population will vote for all 435 seats in the U.S. House of Representatives, one-third of all U.S. senators, thirty-six state governors and three U.S. territory governors and many city mayors. If the Republican party loses the control of the House of Representatives or the Senate, it could also represent a decrease in the economic growth.
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