Questions About Recessions

What will cause the next recession? In 2014 I wrote The Next Recession: Cause and Timing and said, “The Federal Reserve’s unwinding of its stimulus is the most likely cause of the next recession. For a while Europe was the most troubling threat. Although risk still comes to use from Europe and the Middle East, the Fed is now the greatest concern.” I continue to believe that European financial instability is a risk, along with and China’s economic deceleration. At this point, November 2016, though, the greatest risk to the U.S. economy is that businesses hold off spending and hiring until the Trump administration’s policies are clear. (That is not the same as saying that Trump’s policies are bad, just that companies may delay decisions until future policies are more certain.)

GDP Hist

How likely is a recession? In October 2016 I wrote Recession Likely in the Next Four Years using “likely” as more than 50-50 odds, but not certain. I continue to believe that. I think the probability of a recession beginning in the next 12 months is about 20 percent, but that’s a judgment call.

Are we already in a recession? I wrote Are We Already In A Recession? (2012 Edition) because I was reading people argue that way. Because of time lags in publication of data, it’s possible for the economy to be in recession before the data show it. And there’s always somebody saying that we are already in a recession. In January 2016 I wrote another such article Are We In Recession Now? quoting a couple of analysts who thought the worst. And since that article was written, we’ve learned 2015 4th quarter had positive growth, as did the first three quarters of 2016. So no, we weren’t in recession already.

How to prepare for recession? Back in 2008 I was quoted by The Florida Times-Union: “For Conerly, preparation should include evaluating how vulnerable your business or family is to a recession, understanding where you are in your own economic cycle and figuring out what you'll do if things get worse.” And then, of course, I wrote a book on this theme, The Flexible Stance: Thriving in a Boom/Bust Economy.

Update: I just answered the question What Is A Recession on my blog.