The economy is in a pretty good spot right now. Unemployment is relatively low. Consumer confidence is high. The Washington Post is musing about the stock market maybe being “too hot.” These are all good signs—too good, for some economists. Are we due for a recession?
The Atlantic has a nice examination of that question. You should read the whole thing, but the theory goes like this: We’re in the midst of a long, uninterrupted expansion—two times longer than average. Recessions tend to come in semi-regular intervals. Other than Bill Clinton, every U.S. president since Gerald Ford has seen a recession while in the White House. And Republican presidents (dating back to Teddy Roosevelt) are historically prone to recession in their first terms in office.
It feels like a perfect storm, and there’s growing sentiment in economic circles and around the internet that we’re due.
“I recently noted that since 1910, the U.S. economy is either in recession or enters a recession within 12 months in every single instance at the end of a two-term presidency, effecting a 100 percent chance of recession for the new president,” fund manager Raoul Pal writes in a recent edition of The Global Macro Investor, according to Yahoo Finance.
History, it seems, is not on our side. But history isn’t everything. Via The Atlantic:
Recessions do have a way of coming around every six or eight or 10 years. But economists caution against confusing the length of an expansion with its maturity, and against conflating historical probabilities with forward-facing predictions. There’s no reason the current spell of growth could not outlast the Trump administration, they say. Expansions don’t die of old age.
“This is a really long expansion,” said Ben Herzon, a senior economist at Macroeconomic Advisers, a St. Louis-based economic research firm. “But the length itself does not tell us anything about the likelihood of a recession in the next year, or five years.”
Outside evidence backs that assertion. Australia is in the midst of a 25-year stretch without a recession, and the Netherlands went without recession from 1982 to 2008, BBC News reported. The U.S. is subject to vastly different economic forces than either of those countries, of course, but those streaks suggest that recessions, as a rule, aren’t on a timer. Economies can get strong and stay strong.
Are there are signs the U.S. economy could soon begin to falter? Sure. The Atlantic, citing a pair of recent reports, noted that corporate profits, a key indicator of economic strength, are leveling off or dropping. And some experts worry about increasing energy costs, negative earnings growth in the S&P 500 and other factors.
But many economists are cautiously optimistic. Anthony Chan, chief economist for Chase Private Client, told CNBC the odds of a 2017 recession are no more than 20 percent. A Goldman Sachs model puts the odds at 25 percent over the next four quarters. And Bruce Kasman, head of economic research at JPMorgan Chase, put them at 33 percent, Bloomberg reported.
We can breathe easy, it seems. For now.
