The ‘R’ word: a recession on the horizon?
After the broad-based stock market declines of January and February, the major indicies are down substantially from mid-2015 levels. Recent market gyrations and global turmoil have raised the specter of the “R” word — recession — among some market pundits.
Economists polled by Bloomberg in February pegged the chances of a recession occurring within the next twelve moths at 1-in-5 (20 percent). That is double the likelihood of recession that was recorded in September 2015.
“It’s been pretty wild,” said David Blitzer, chairman of the index committee at Standard & Poor’s, describing the past several months of market volatility and economic uncertainty. Blitzer is a veteran of six recessions as a professional economist, going back to 1973.
The past six U.S. recessions, as determined by the National Bureau of Economic Research, are dated as follows: * November 1973 to March 1975; *January 1980 to July 1980; *July 1981 to November 1982 (known as the “double-dip recession”); *July 1990 to March 1991; *March to November 2001; *December 2007 to June 2009 (the “Great Recession.”)
Blitzer identified the biggest risks to the U.S. economy right now. “There’s oil, China, the U.S. dollar,” he said. “There’s political anxiety — maybe times two or three or four. This expansion is getting old. The recovery never took off. We’ve got too many villains, but none of them are really very big and nasty.” At least, he said, they’re not “big and nasty” enough to bring on a recession.
Blitzer said most business-cycle recessions in the U.S. (excluding the Great Depression and the Great Recession) have been precipitated by the Federal Reserve raising interest rates to fight inflation and slow an overheating economy.
“This current expansion has virtually no inflation,” he said, adding that economic growth is, if anything, subpar.
There is a view held by some analysts that the current expansion is simply getting old, making another recession inevitable before long. At 6 ½ years, it is already one of the longest expansions since World War II.
Investment strategist William Delwiche at Robert W. Baird & Co. doesn’t buy it.
“The age of the recovery doesn’t actually increase the chances of going into a recession,” said Delwiche, citing a research paper published by the Federal Reserve Bank of San Francisco. This view is also consistent with recent statements by Federal Reserve chair Janet Yellen.
“The single best indicator that a recession is on the way is initial jobless claims,” said Delwiche. Jobless claims are near decade-lows, while the unemployment rate is below 5 percent and has been edging down in the past year.
Still, David Blitzer points to one incontrovertible historical fact, going back to the start of relevant economic record-keeping in the U.S.: “Since December of 1854, none of the expansions have gone on forever. So the chances that all of a sudden this one does, are pretty slim.”
Blitzer expects that the next downturn — whenever it comes — will be more like the garden-variety recession of 2001, than the Great Recession the nation has just struggled through.
“Unless it’s some really bizarre event, it’s not going to be as severe as 2007-2009,” Blitzer predicted. “Probably last ten to twelve months, push the unemployment rate to something like 8 percent. That doesn’t mean it’ll be fun, but it won’t be that bad.”
A poll of economists by Bloomberg published in the fall of 2015 pegged the most likely timing of the next U.S. recession as some time in 2018.
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