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.)
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 Forbes.com blog.
We're still months away from the election, but my favorite political forecaster, Larry Sabato, has drilled down to important realities in The Electoral College: The Only Thing That Matters. He notes that it's too early to call the contest, but he finds Hillary Clinton to have a strong lead over either Donald Trump or Ted Cruz.
As I noted in my Forbes.com article, How Bad Will The New President Be For The Economy, a President Clinton would have difficulty implementing her program if at least one house of Congress is held by Republicans. If Clinton has coattails long enough to pull both houses to the Democrats, then it's time to re-think our economic and investment forecasts. But I'm not there yet.
I often hear commentators saying that we are already in a recession. This could be the case because the data always come out with a time lag. The official arbiter of recessions, the Business Cycle Dating Committee of the non-profit National Bureau of Economic Research, waits some months after data are released to evaluate whether a recession began.
However, it seems that whether we are in good times or bad, someone is claiming that a recession has already started. So I'm going to post the reports I hear, as an historical record of who thinks we're already in recession.
I don't incorporate much politics into my economic forecasts. I'm no better than average at predicting electoral outcomes. Even if I knew who was going to win, I wouldn't know what that person would do as president. (I didn't expect Bush II to push for steel tariffs or a Medicare drug benefit; I didn't expect Obama to maintain war in the Middle East or domestic surveillance without warrants.) And finally, even if I knew who would win and what that president would try to do, I wouldn't know that Congress would go along.
We've heard it (and I've said it) thousands of times: correlation does not mean causation.
Yet we still make the mistake (and I do mean "we").
Tyler Vigen has developed a correlation machine. He has scraped lots and lots of data series, then gone searching for correlation. Take a look at the Spurious Correlations website, and watch Tyler's video down at the bottom. (Hat tip: Greg Mankiw)
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