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Is the Next Recession on Its Way?

Aug 03, 2018 | Chris Farrell |

Is the Next Recession on Its Way?

Written by Chris Farrell via Forbes

Here are two safe forecasts, the kind you can count on. First, the U.S. economy will sink into a recession. Second, no one knows when the recession will arrive. Taken altogether, these two “forecasts” have critical implications for managing your finances.

But first, let’s look at the economy.

President Donald Trump came in for some well-deserved ridicule proclaiming the economy “amazing” when the second quarter Gross Domestic Product (GDP) number came in at a 4.1% annual rate. Nevertheless, GDP growth is healthy, the unemployment rate is 3.9% and the labor force participation rate is climbing. Business and consumer confidence is high, too, and inflation is moderate. The Federal Reserve is confident enough in the economy’s resilience that it will likely raise short-term interest rates again next month.

We’re In the 2nd Longest Economic Expansion

In short, the second longest economic expansion in U.S. history doesn’t show many signs of flagging yet.

That said, readers of The Wall Street Journal, The Financial TimesThe New York Times and Bloomberg are seeing daily articles weighing the risk of recession. The commentary definitely leans toward the worried, although the favorite year of reckoning is around 2020 (which, if accurate, means the current expansion will become the longest on record).

The mood is best captured by the current Fortune coverline: The End is Near for the Economic Boom. “A significant slowdown or even recession is coming sooner or later, and it’s probably coming sooner than you think,” wrote editor-at-large Geoff Colvin. “It always does.”

What ‘The Next Recession’ Worriers Are Worrying About

What is the recession-is-coming crowd focusing on? The consensus expectation is that the economic boost from the corporate tax cuts will fade in coming quarters. The GDP numbers so far don’t show the administration’s promised surge in business investment, the kind that leads to higher, sustainable growth. Instead, as the economy shifts into lower gear, it will be vulnerable to a stumble or unexpected shock — with government, business and consumers debt at nosebleed levels. The Fed and other central banks are hiking short-term rates, always a tricky maneuver that can backfire. Meantime, the Chinese economy is showing signs of stress, and growth is faltering in most developing nations.

Read the full article on Forbes: Is the Next Recession on Its Way? | Forbes