Is a Recession Imminent?

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Is a Recession Imminent?
Is a Recession Imminent?

It’s a word that scares just about everyone: “recession.” Whether you are a business owner, an investor, or just a person hoping to keep their job and support their family, the R-word is enough to cause nightmares. This point is especially true now, with the memory of the Great Recession of the late 2000s still fresh in most of our minds. That recession was the worst economic downturn that the United States has seen since the Great Depression. It goes without saying that no one wants to go back to those lows.

And yet, being pragmatic and thinking ahead are both things that are essential when it comes to economic booms and busts. Everyone would prefer to have periods of prosperity last forever. As history has shown time and time again, though, the timeline of economic health is less of a straight line than a chart of peaks and valleys. The question whether a recession is imminent, therefore, is one we must all contend with at this point in time.

Earlier this year, MarketWatch explored the likelihood of a recession through the lens of the Donald Trump presidency. According to the article’s writer, Ryan Vlastelica, every Republican president since Teddy Roosevelt (who served from 1901 to 1909) “has had a recession take hold” during their first term. If Trump is to suffer the same fate as his party predecessors, then the next recession is, at most, two years away.

Trump’s ardent supporters will largely shrug off this worry, and no matter what you think of the president, they have reasonable arguments for doing so. Trump is currently presiding over the longest-running bull market in United States history. On August 22, the current bull market reached its 3,453rd day—a previously unprecedented milestone in American economics. The streak of uninterrupted gains—which stretches back to March 2009—has surpassed the previous record for longest-running bull market. That streak started in 1990 and ran throughout the decade, before eventually breaking when the dotcom bubble burst in March 2000.

The big question now is what kind of event might break the bull market streak and bring about a new recession? According to this article from The Atlantic, if there is a recession lurking, it likely won’t be a case of history repeating itself. The Atlantic piece looks back at all the notable recessions since the 1970s, charting their causes. In the 1970s, oil crises led to a recession. In the early 1980s, the Federal Reserve ignited a recession by trying to combat inflation with an ill-advised interest rate hike. In the late 80s, spiking oil prices (caused by the Iraqi invasion of Kuwait) and another Fed interest rate increase killed economic growth. In the early 2000s, both the dotcom bubble burst and 9/11 led to big decreases in investment. And, of course, in the Great Recession of the late 2000s happened largely because the U.S. housing market went bust.

These issues aren’t likely to repeat themselves. There is some concern over a cooling housing market, but nothing to suggest a historic collapse on the scale of what happened a decade ago. If there’s a chance of a recession in the immediate future, it likely will have to do with trade. When Trump took office, he slashed a slew of federal regulations—a decision that arguably created a freer market and led to the low unemployment rate we have right now. More recently, though, he’s made a major economic blunder that could reverse this accomplishment: tariffs. Not only is the building trade war with China causing problems for domestic farmers and manufacturers, but it has also accelerated an economic downturn in China. That downturn will send ripples around the globe, and could certainly affect the United States’ economy.

So what’s the verdict on a first-term recession for Trump? At this point, it’s too early to say. Some economists are forecasting trouble ahead, while others point to a slowdown but not necessarily a recession. In any case, now might be a good time to have a chat with your financial advisor to look at your portfolio and learn where you might be able to insulate yourself against risk.