Those Who Predict Recessions are Often Wrong

Are we staring at a recession on the horizon?

You have surely seen or heard reports, opinion, and speculation to that effect. Gloom has been a mini-rage lately.

A few questions are in order. Are economists able to accurately predict recessions? No. If their accuracy percentages were batting averages, you would bench them.

Why is the subject of recessions in the air so much lately? The American Left salivates at the hint of a recession. Why? Because a recession would inspire voters to kick Donald Trump out of office. Thus, critics fill our airwaves and opinion columns with gloom and doom. Entertainer Bill Maher openly dreams of a recession. The New York Times columnist, Paul Krugman, reckons “Trump Boom to Trump Gloom.” He is anxious to scuttle praise for Trump’s economy — because he predicted horrible endless worldwide calamity right after Trump’s election. Good economic news embarrasses him.

Can you predict recessions as well as most economists? Probably. Before you make your prediction, here are a few items to consider.

First, recessions are normal and natural. They are like a cold or the flu. The longer we go without one, the more likely we are to suffer one. We have gone 10 years without a recession (defined as two straight quarters of negative GDP growth). That is a record. But our recovery from the last one is one of the weakest ever. Some economists argue that this shows our economy has a lot more room for further expansion.

Next, we can identify two primary causes of recessions over the last eight decades. One is that the Federal Reserve tightened the money supply aggressively. The other is that we had imbalances — bubbles. An example is the big housing bubble before the last recession.

Well, we do not face either cause at the moment. The Fed is loosening, not tightening. And we have no bubbles in sight. (And they are easy to spot.)

Also, we usually have certain conditions before recessions. We typically have a surging economy. And rising interest rates. And predictions galore that stocks and corporate profits will rise a lot.

Well, we do not have these conditions. Instead, the economy is growing steadily. It is not surging. Interest rates are not rising. And we don’t see a lot of predictions for rocketing stock prices and corporate profits.

In recessions, consumers slow their spending. We are seeing the opposite — according to government economic reports. Most big-box retailers tell us their sales and profits are climbing. Walmart is so huge that its figures probably give us a better look at consumer spending than the government’s. And Walmart is pretty happy these days.

It makes sense that consumers spend more these days — and express higher confidence in the economy. After all, we have full employment. We have more job openings than we have unemployed workers. And wages are rising.

Here is a canary in the coal mine for the economy. Weekly unemployment claims. Well, these claims are not up. The canary chirps.

Here is a common indicator of good figures ahead: How much businesses are investing in new plant and equipment. That figure is down. But only slightly.

Another canary in the mine is the trend in homebuilding and buying. Well, building is down. But buying of existing homes is up.

But won’t Trump’s big trade war with China push us into a recession? Maybe, in time. And if we and they open new fronts in the war. But we have not yet imposed many of the tariffs. And we have deferred many others. As for China’s tariffs against our products, they are huge, yes. But the impact on our entire economy is minimal.

The British and German economies are slowing. And the overall EU economy is not much to write home about. Won’t these slowdowns pull us into recession? Not necessarily. Our economy has often moved in the opposite direction of theirs.

Two further items to consider. One is that we might well have suffered a recession by now without the big tax cuts passed at the end of 2017. And without the slashing of regulations. There is a strong argument that they breathed life into our weak recovery from the last recession.

A final item is perception. In the recent past, we had media and political bullhorns convince a majority of Americans that we were in recessions — at times when we were anything but. Given the anti-Trump and left-wing bias of our mainstream media, this is likely the goal of much of our media machine today.

In other words, you will probably hear a lot more gloom and doom from them. The difference this time is that Trump wields a bigger bullhorn than the Bushes did. He roars about good news on the economy. They mumbled. They said, “Excuse me, but the figures show we are not in recession.” He booms, “Fake News.”

Predicting booms and busts is a fool’s errand. Being foolish, I suggest there are precious few red flags, canaries, or omens in the stars for a recession soon.

From Tom…as in Morgan.      

Tom Morgan writes about political, financial, and other subjects from his home in upstate New York. You can write to Tom at tomasinmorgan@yahoo.com, read more of his writing at tomasinmorgan.com, or find him on Facebook.