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Brace for Recession Despite 121 Months of Economic Expansion

Brace for Recession Despite 121 Months of Economic Expansion

By    |   Monday, 15 July 2019 10:28 AM

If you’ve been holding cash aside in anticipation of the next Great Recession, you’ve missed out. The United States has officially seen the longest economic expansion in its history: 121 months and counting.

After reaching a peak of 10% in 2009, the unemployment rate fell to 3.6% this past May. Just recently, a job boom in June kept unemployment near those historic lows. Many people are feeling comfortable again to spend, apply for rewarding financial products and invest.

But those looking for a conventional “healing” after the 2008-2009 economic turmoil will notice that things aren’t quite the same. Not only is the national psyche still on edge after a recession so bad that it was the worst downturn since the Great Depression, but even the recovery has shown signs that our growth hasn’t been all it’s cracked up to be.

Where the economy has changed

Those who think recovery is simply due to a normal fluctuation in the business cycle are missing some of the signs where it has seen changes in the national economy. It’s important to note these signs if you’re going to get a sense of where we are in 2019:

  • Manufacturing. Between 2006 and 2016, manufacturing jobs in the U.S. decreased by about 1.8 million, according to the Bureau of Labor Statistics. While the economy has grown over that time, the net loss in manufacturing jobs points to growth coming from other areas.
  • Quality of jobs. Although the economy added plenty of jobs during the 121 months of recovery, the quality of those jobs is questionable. Fool.com illustrates the net gains and losses in each employment sector between 2008 and 2014. For example, there was a large net loss in construction jobs over that period, while leisure and hospitality jobs improved. Those paying attention will notice that not all jobs are made the same, especially when it comes to wages.
  • Wage growth — or lack thereof. Ideally, a growing economy will mean more opportunities for employment and an influx of skilled workers. But this recovery hasn’t been as simple as that. Wage growth has seen a steady decline since the middle of the 20th century, with relatively stagnant growth during the recovery.

Understanding these dynamics helps you get a clearer picture of the 121 months of recovery. But there’s more to discern when it comes to tracking the economy’s current direction.

How this recovery has been different than recoveries in years past

The hallmark of this recovery is its length. It continues to astound experts who haven’t experienced anything like it; but in some ways, that length is part of what makes this recovery so difficult to read. Has the extended length been part of the reason for its relative slowness?

A look at the GDP growth throughout history suggests that things have gotten less volatile. That might be an argument that this recovery has been stable. But the slow GDP growth after such a deep and sudden recession also suggests that the economy hasn’t quite healed the way it was meant to.

Another variable that points to the relative weakness of this recovery is that of the Federal Reserve target interest rates, which required several years of interest rates set at zero — unprecedented at the time — and have only recently begun to tick up. This suggests that the recovery, even in its infancy, was never as strong as it should have been.

Just recently, we saw how perilous the economic position may be. Two variables point to potential weaknesses:

  • An inverted yield curve. The yield curve inversion is considered one of the best predictors of a recession. And it happened in 2019. This may be one of the strongest signs yet that the 121 months of growth we’ve seen is doomed to slowing down and even reversing in a recession; however, no one seems to know just how strong the legs of this recovery truly are.
  • A jittery stock market. Stocks are near all-time highs right now, but it doesn’t take too much to send them tumbling. Even the recent news of a positive U.S. jobs report sent stocks tumbling because it meant the Federal Reserve would be less likely to cut interest rates. If positive job reports aren’t enough to bolster confidence in stocks, just how healthy is the current economy in 2019?

At 121 months and counting, the economy is in a powerful place. But that doesn’t mean cracks aren’t showing in the foundation. Investors would be wise to be prepared for the next recession.

Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.

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If you’ve been holding cash aside in anticipation of the next Great Recession, you’ve missed out. The United States has officially seen the longest economic expansion in its history: 121 months and counting.
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Monday, 15 July 2019 10:28 AM
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