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Tags: shiller | recession | trump | effect | economy

Yale's Shiller: Trump Is Stopping a Big Recession

(Chip Somodevilla/Getty Images)

By    |   Monday, 21 October 2019 09:25 AM EDT

Nobel-prize winning economist Robert Shiller predicts that President Donald Trump’s “bullish effect” on financial markets will keep any recession at bay for many years.

The Yale University economics professor explained to CNBC that Trump fosters an economic environment that is conducive to strong consumer spending, which is a major deterrent to any recession.

“Consumers are hanging in there. You might wonder why that would be at this time so late into the cycle. This is the longest expansion ever. Now, you can say the expansion was partly [President Barack] Obama,” he told CNBC.

“But lingering on this long needs an explanation,” said Shiller, who believes Americans are still opening their wallets wide based on what Trump personifies: consumption.

“I think that [strong spending] has to do with the inspiration for many people provided by our motivational speaker president who models luxurious living,” said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.

However, the president does have to first overcome the impeachment inquiry, said Shiller, who helped develop the widely-followed S&P/Case-Shiller Home Price Indices.

“If he survives that, he might contribute for some time in boosting the market,” said Shiller. “We’re maybe in the Trump era, and I think that Donald Trump by inspiration had an effect on the market — not just tax cutting,” said Shiller, who developed the cyclically adjusted price-earnings (CAPE) ratio market valuation measure, which is calculated using price divided by the index's average historical 10-year earnings, adjusted for inflation.

Shiller contends the next recession may not hit for another three years, and it could be mild.

“Let’s not make the mistake of assuming it’s right around the corner,” Shiller said. “If the economy is strong, which is what he built is case on, ‘make America great again,’ he has a good chance of getting re-elected.”

Meanwhile, Bloomberg News reported that the chances of a U.S. recession within the next 12 months is now at 27 percent as economic-slowdown fears have grown in recent months amid a persistent trade war with China, pullbacks in corporate hiring and investment and a manufacturing sector that has already slipped into contraction.

The recession probability model developed by Bloomberg economists Eliza Winger, Yelena Shulyatyeva and Andrew Husby incorporates a range of data spanning economic conditions, financial markets and gauges of underlying stress. Some indicators, like the yield curve, are flashing warning signs. Others, like real wage gains, not so much.

Forecasting just when a recession will begin is notoriously difficult, but as a downturn nears, indicators flash clearer warnings. Because different indicators show signs of strain at different points, the heat map below reflects the chance of a recession at various points in time, with each focusing on a different set of indicators.

Many define a recession as two consecutive quarters of negative growth. The official dating committee at the National Bureau of Economic Research takes a more holistic approach, defining a recession as a “significant decline in economic activity spread across the economy, lasting more than a few months.”
Recessions are usually accompanied by a swift increase in the unemployment rate. The jobless rate differs greatly between downturns depending on the breadth and severity of the recession. While unemployment peaked at 10% in 2009, and rose even higher in the early 1980s, other downturns have brought still-painful but smaller increases in the jobless rate.

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Nobel-prize winning economist Robert Shiller predicts that President Donald Trump’s “bullish effect” on financial markets will keep any recession at bay for many years.
shiller, recession, trump, effect, economy
Monday, 21 October 2019 09:25 AM
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