Is a recession coming? You'd be forgiven for wondering. Although the economy has continue to grow since Trump took office, several events have caused the stock market to fluctuate wildly. The major legislative achievement — the Republican tax bill, which will add $1.5 to the deficit — has questionable long-term economic effects. And some of Trump's threats make economic experts nervous, such as a potential trade war with China, Mexico or Canada, or all of the above.
But as things stand now, is a recession on the way?
What is a recession?
A recession is defined as two consecutive quarters of negative GDP growth. The last recession the United States experienced was the Great Recession, which lasted from December 2007 to June 2009. Some economists believe we're overdue for another: In the modern era, they've happened every eight years, on average.
Recent indicators are positive. According to the Bureau of Economic Analysis, GDP rose by 2.5 percent in the fourth quarter of 2017 and 3.2 percent in the third quarter, the latest data available. Personal income ticked up by 0.4 percent in January. The stock market hit new heights and endured a modest correction this year. We're nearly at full employment.
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But are there signs of a slowdown?
What are the signs of a recession?
According to The Balance, recession warning signs include an asset bubble (such as the real-estate bubble that led to the 2008 recession or the stock market before Black Friday 1929), widespread get-rich-quick schemes (see again, real estate and stocks) and irrational exuberance, a.k.a. people proclaiming "this time it's different" and good times will last in perpetuity.
Another, as mentioned, is simply time. "A recession is likely sometime between now and 2019," wrote George Friedman on MarketWatch in May 2017. "We are eight years from the last recession, and 10 years has been the longest period between recessions. The precursors to a depression — such as irrational exuberance of asset classes, rising interest rates, a negative yield curve, and proclamations that 'this time, it’s different' — have at most been modestly appearing. But the clock is ticking."
Is a recession coming?
In a January 2018 piece titled "Is the Trump recession coming?", David von Drehle of the "Washington Post" also made note of the length of the latest U.S. economic expansion: The third longest on record. It is poised to break the all-time record next spring "and begin testing the outer limits of the cycle," he writes. "It’s not hard to imagine shocks that could trigger a drop. Democrats could win control of the House and ignite an impeachment crisis. Mueller’s investigation could take an unsettling turn. The Federal Reserve could raise interest rates faster than the economy can digest them. Or the opposite: The Fed could move too slowly and smoldering inflation could catch fire. China’s debt bubble could burst. North Korea could erupt. Or the very real threat, dreaded by Trump’s own economic advisers: The president could deliver on his trade war threats."
A trade war, for example, would raise consumer prices and lower demand for American-made goods, creating a classic chain reaction of lower spending, lower demand, higher supply and higher unemployment.
So pick your poison. Or another metaphor. "As the saying goes," says von Drehle, "it only takes one pin to burst a balloon."