Recession coming? What economists think

What could the next recession feel ? Stories from past downturns are a guide

Recession coming? What economists think

The National Bureau of Economic Research determines a recession occurs when “a significant decline in economic activity” lasts more than “a few months.” USA TODAY

The next recession – whenever that is – will be run-of-the-mill, economists expect. But for many people, their only or closest experience of a downturn was one for the record books: the Great Recession of 2007-09.

That one lasted 18 months, longer than any other since World War II, and massive job losses occurred years after the recession technically ended. It was characterized by foreclosures and long-term unemployment. Its aftermath is still felt today.

But that was atypical, and economists expect the next recession to be less severe and shorter because household debt is in better shape and banks are on solid footing.

While the economy is flashing some signs of trouble, we aren't known to be in a recession yet. We wouldn't know anyway because they are declared retroactively by the National Bureau of Economic Research.

Some economists, though, think one could hit in 2020.

If so, what can you expect?

Following a plan can help you minimize the harm — and perhaps even profit — from the next recession. (Photo: Getty Images)

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Say goodbye to jobs

Even in the mildest recessions, when job losses happen, it’s “devastating” to any individual affected, says Mark Zandi, chief economist at Moody’s Analytics.

Others lose hours, raises and bonuses. Those not directly affected may know people who lost jobs, either family, friends or colleagues. There’s a ripple effect.

“It may not be devastating,” Zandi says, “but it’s terribly uncomfortable.”

Take the 1991 recession and its impact in the Bronx, as chronicled by then-Newsday reporter Gail Collins, now an op-ed columnist for The New York Times. The downturn came in “ a flash flood. Everybody feels it,” she wrote.

In the article, Collins talked to a guy – Jeremy – who offered to pump gas at a self-service station in the New York City borough for tips. He once had a job, working at Roy Rogers, but he got laid off.

An owner of a nearby children’s clothing store thought about shuttering his store, according to the article.

“This is going to be my last year. I can't hold on,” the store owner said then. “Nobody has any money,” his clerk said.

Tightening belts

When a downturn hits, Americans also pinch their pennies. Spending on travel, entertainment and eating out are cut down.

A 1982 article from the United Press International noted that the recession then was hurting rock concerts and record sales at the time.

A Dallas promoter even blamed the break-up of The Doobie Brothers, who were then on their final national tour, on the recession. He noted that the group wouldn’t have separated “if the money was rolling in it used to,” the article said.

Americans even abandoned doing their own car repairs to save money during the double-dip recession of the early 1980s, according to a 1982 UPI article.

''We're seeing a lot of people not doing anything,'' a spokesman with the Automotive Parts and Accessories Association said at the time. ''It's the drive it till it stops syndrome.''

Family life during recessions

Even the kids aren’t spared.

A 1982 Associated Press article described how Jane Heim, who wrote letters to children from Santa Claus, had to choose her words carefully that year because of the recession.

“I have to tell them they may not get all the toys they are asking for,” she said. “Because of unemployment and the poor economy as a whole, we expect many parents to enclose a note saying they won't be able to buy their children gifts they really want. This makes a very delicate situation, and it must be handled with kindness, tact and understanding.” 

A Washington Post article from 1991 asked teenagers how the recession was affecting them: Lower allowances, a lack of summer jobs and fewer big-ticket Christmas gifts was what they said. 

Silver linings

Many individuals turn their recession woes into opportunity.

In 2001, USA TODAY reported that Andrea Papa, a single mother who had been laid off from her job of 20 years, turned around and started her own media and marketing business. Another perk: She greeted her son when he got home from school.

“People have been telling me for years to do this, but as a single parent, I always said, 'No.' Then the decision was made for me,” Papa said then. “When I was laid off, one door was closed, but there is a myriad of other doors to choose from.”

Another 1991 article from The Advertiser in Australia found that the downturn there was boosting people’s sex lives.

“Sales of erotic lingerie and sex aids are booming, as couples spend time at home enjoying each other's company,” the article said.

Even in a recession, there’s always a silver lining.


Although the American economy may look recovered on paper, some made drastic decisions during the recession and are still digging out from deep hole. USA TODAY

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The coronavirus recession is already here

Recession coming? What economists think
The coronavirus pandemic has already plunged the US economy into a recession. Johannes Eisele/AFP via Getty Images

You don’t need to be told there’s something deeply wrong in the economy right now.

The coronavirus crisis has sent the economy into a tailspin in the United States and around the globe. The restaurant industry has ground to a halt. So have air travel, auto manufacturing, hotels, gyms, and cruise lines.

The stock market has posted enormous losses and wild daily swings, to the point that trading has sometimes been paused altogether, and the price of oil has plummeted. Layoffs across the country are taking place in waves.

We’re producing less, spending less, and consuming less.

After more than a decade of expansion, the next recession is here.

“The reality is that even without the data, this is the one time where we can look around and say, well, first of all, everybody is at home,” said Betsey Stevenson, an economist at the University of Michigan and former Obama administration official. “We won’t know for a long time what the full magnitudes of the decline are.”


Why we’re not overreacting to the coronavirus, in one chart

In recent days, I spoke to half a dozen economists about the state of the US economy and this question: Are we in a recession? The resounding response: Yes, we are, and if somehow we’re not yet, we will be in a matter of days.

“The economy was strong coming into this, and what we’re doing now is shutting down parts of the economy for the sake of public health,” said Bill Dupor, assistant vice president and economist at the St. Louis Fed.

What we’re in now is different from other recent downturns.

It’s pegged to the global health crisis caused by the coronavirus pandemic, and whatever levers the Federal Reserve, Congress, the White House, and state and local governments pull can only do so much.

Government officials made the decision that shutting down businesses and pausing a lot of economic activity is worth saving lives. As Dartmouth College economist Bruce Sacerdote put it, “It’s all about getting the damn virus under control.”

Say the bar down the corner from me is ordered to close, and the bartender, therefore, is laid off. I can’t go spend money at the bar right now, and the bartender isn’t making money she can spend. Even if I’m still collecting a paycheck, I know the economic situation is precarious, so I want to save.

“That’s the paradox of a lockdown economy,” said Greg Daco, an economist at Oxford Economics.

“Right now, we’re just trying to manage the fall,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, a bipartisan group that advocates for fiscal responsibility.

The warning signs are everywhere, even if the data isn’t yet

A recession generally means that the economy, instead of growing, contracts.

Traditionally, a recession has been defined as two consecutive quarters of negative GDP growth.

The National Bureau of Economic Research has a broader definition: “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

” A group within the NBER, the Business Cycle Dating Committee, is the body that officially “calls” when a recession starts and ends. It could do so once two quarters of data are in, it could do so now, or it could never do so at all. Data is often a lagging indicator, but given the state of affairs, we don’t really need to wait to figure out what’s happening.

“The point is, we’re going to have a sharp economic contraction,” said Richard Sylla, professor emeritus of economics at New York University. “We won’t officially know whether it’s a recession or not until sometime late in the year. But that really isn’t the relevant thing.”

The data and estimates we do have are already staggering. Restaurant occupancy has plummeted across multiple states and cities, and airlines are slashing flights.

Weekly jobless claims spiked to 3.3 million the week ending March 21, the biggest jump in claims in history and well above the previous record of 695,000 dating back to 1982. Various states have seen unemployment insurance phone lines jammed as recently laid-off workers call in. The unemployment rate is widely expected to spike from the historically low rate of 3.5 percent in February.

Christina Animashaun/Vox

Analyst forecasts for GDP growth have become increasingly dire in recent days as the gravity of the situation sets in. JPMorgan estimated the economy could shrink by 14 percent in the second quarter.

Goldman Sachs forecast a decline of 24 percent.

Both predicted a strong bounce-back in the third and fourth quarters, largely on the assumption that the virus will be under control by then, which is far from assured.

“For me, there’s too much uncertainty,” Dupor told me.

This is hitting Main Street and Wall Street

Most recent downturns have started within the financial system, such as the Great Recession and financial crisis more than a decade ago, explained J.W. Mason, a fellow at the Roosevelt Institute, a progressive think tank. This is not that. “It’s starting in the real economy,” he said.

But that doesn’t mean what’s happening on Wall Street doesn’t matter. While the stock market is not the economy, plenty of people have money invested there, including for retirement.

The stock market can also be a leading indicator of where the economy is headed, and by that measure, where it is headed is not good.

Stocks have essentially given back all of their gains since Trump took office in 2017, and the markets have become pretty volatile.

“If you think about it, the stock market is a reflection of financial intermediation in the broadest sense of the term,” Daco said. “It’s essentially a scorecard whereby business generates revenue over time, they borrow, they lend, and they produce.”

The stock market’s performance could also have a psychological effect, whether it’s just in the headlines or people checking their investments and 401(k) balances. “I assume that a 30 percent decline in the stock market makes people feel poorer, so they’ll go out and spend less. That’s a source of declining demand,” Sylla said.

Wall Street stocks plunged again on March 18 as economists warn of a deep recession. AFP via Getty Images

Oil prices have plunged as well, taking a sort of one-two punch: a price war between Saudi Arabia and Russia, and then a decline in demand because of air travel and other coronavirus-related developments.

In a typical economy, that translates to low gas prices, which means consumers have more money to spend. But again, this is not that.

A lot of people aren’t driving anywhere, and they’re trying to save their money, not spend it.

Beyond what’s happening in the stock market and oil prices, people across the country right now are feeling a real shock in their everyday lives. It’s not Wall Street traders who are on the front lines of the economic crisis here, it’s everyday workers.

What’s happening right now is a combination of supply and demand constraints. In some cases, there are legal constraints — cities and states are shutting down bars, restaurants, gyms, etc.

, and people are being told to stay home. In other places, the constraints aren’t legally in place, but they’re implied by society.

“People literally aren’t going to work to produce stuff, and people aren’t going to buy stuff,” Goldwein said.

“Very large swaths of industries are going to be called off limits, so those businesses are naturally cutting back hours and letting people go,” Sacerdote said. He also emphasized that, as in 2008, this will hit people hardest on the lower end of the economic and educational spectrum. “The gap by education will be strong again, if not stronger,” he said.

“When GDP declines by 5 percent, that’s as if the average person in the economy has cut their spending by 5 percent. Does it seem reasonable to you that people have cut spending by 5 percent? Does it seem reasonable that it’s bigger than that?” Stevenson said. “No matter how you look at GDP, we can see the shrinking.”

Dupor warned that state and local governments could be headed toward severe hardships as well. The cost of borrowing for many of them has increased sharply, and for governments going forward with critical investments, that translates to higher interest costs on top of falling tax revenue.

Eventually, they’ll have to start making decisions about cutting back spending.

It’s “going to mean both worse public services going forward, including potentially critical stuff for dealing with public health emergencies public hospitals and clinics, and a loss of income for the companies and workers that produce this stuff,” Dupor said.

We’re in the unknown

Anyone who tells you they know what’s going to happen with the US economy, or when it’s going to bounce back, is guessing.

Some economists have suggested that the economy will begin to bounce back in the third quarter, but that assumes the virus is under control and people are able to return at least somewhat to their normal lives.

And there’s just no guarantee that’s going to happen — scientists have warned that we could have to live with social distancing for a year or more.

“There will not be a recovery until we have solved the public health part of this,” Goldwein said.

But that does not mean all is lost (at least if we all intend to keep getting bed every day, if only to sit in our living rooms in our pajamas).

The government has a role to play to keep things humming along as much as they can until the health and science elements figure it out.

The Fed has slashed interest rates, injected loans, and taken other measures to help shore up the financial system.

On Capitol Hill, Congress has already passed legislation on vaccine development, free testing, paid sick leave, and expanded unemployment. A $2 trillion stimulus bill is in the works.

Such measures are meant to keep the economy from falling deeper than the health crisis necessitates and tide over businesses and citizens. Of course, the concern is whether they’ll be enough. As Politico’s Ben White notes, there are calls for a much bigger stimulus coming from the left and the right.

“The risk of doing too little is much greater than the risk of doing too much,” Stevenson said.

If the coronavirus crisis ends relatively soon, or if the government does enough to intervene, once this whole thing is over, the expectation is that the economy will bounce back.

“There will be a strong recovery, because everybody will breathe a sigh of relief when it’s over, but we don’t know when that’s going to happen,” Sylla said.

But if we’ve done too little, once the crisis is over, it will be much harder to get the economy back up and running. The fact that there are customers who can come back doesn’t mean a business immediately reappears, or that those customers have money in their pockets.


The 9 most important unanswered questions about Covid-19

“People are cooped up, they’re lonely, they’re not getting very much face-to-face socializing, and they are going to be excited to return to restaurants and movie theaters and bars and to go shopping at the mall and to go to Disneyland, but if they’ve depleted all their savings, if they’ve ruined their credit scores, if they’ve declared bankruptcy, then they won’t be able to afford those things,” Stevenson said. “And if the businesses have declared bankruptcy, they won’t be there for them to spend their money at.”

There is much that is unclear right now, including on the economy. We’re going to know when the US recession began — early March 2020 — but we have no idea when it will end.

It may not officially be declared a recession for months or a year, if it even is at all. The best-case scenario: It is an extremely deep but short recession, maybe a quarter or two. (The last recession lasted 18 months.

) The worst-case scenario? Well, we just don’t know.

“We’re in entirely new territory,” Dupor said. “We haven’t ever seen this before.”

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Why are We Talking About a Recession? Economists Weigh in

Recession coming? What economists think

September 3, 2019

Fears of a potential U.S. recession have been cropping up with increasing frequency in recent weeks, and the Trump administration’s escalating trade war with China hasn’t helped matters.

To understand why there is growing talk of recession and how it relates to the trade war, we spoke to two economists, who explained how uncertainty about trade policy has impacted business sentiment and left American companies unsure of how to proceed.

These interviews have been edited and condensed for length and clarity.

Why has talk of recession started to crop up?

Megan Greene, senior fellow at the Harvard Kennedy School: Amongst economists in particular, talk of recession has been really high for the past year. What really started it was the realization that we’d provided all this fiscal stimulus with the tax bill and the spending bill, and that would actually peter out by the end of this year.

There have been other things, particularly the trade war, that have caused a lot of headlines that have made talk of a recession more mainstream than economists and investors trying to figure out when it’ll happen.

A recession in this year is pretty unly, it would just be hard to get that given the growth we’ve had in the first half of the year, so you’d need deeply negative numbers in the third and fourth quarter for the year to average out.

It depends on how you define recession as well. If you use the definition of just two quarters of negative activity, then that would be a little easier. But I still think it’s unly. I also think that a recession next year is pretty unly.

I’d say the probability goes up in 2021.

Peter Ireland, professor of economics at Boston College: I think for a couple of different reasons.

It is true that in the first half of 2019, economic growth and inflation have both been slower than what we had hoped for and expected as of this time last year.

When the rate of economic growth slows, even though it remains solid right now, it’s natural that concerns of a recession begin to emerge.

Even more important, I think, is the fact that economic risks around the world have also increased noticeably — most significantly, uncertainty about trade policy. But more broadly, the Chinese economy seems to be slowing down noticeably. Threats of a more serious slowdown in economic growth in Europe have emerged.

Maybe you could say concerns about Brexit figure into that too, there it’s a little more difficult to see how that would have a big effect on the United States. But the point is, a combination of noticeably slowing economic growth coupled with all of these threats, it does mean that people are right to be worried.

What are some factors or conditions that could push us closer to a recession?

Greene: I think we’re in a manufacturing recession, which is just to say the manufacturing industry is seeing two consecutive quarters of contraction.

We had a manufacturing recession in 2015, 2016, but it didn’t turn into an economic recession largely because the Fed didn’t tighten then. They backed off of their plans to tighten, so that eased financial conditions.

This time, we can’t really rely on the Fed to do our bidding because financial conditions are already pretty easy.

There are worries that a manufacturing recession will seep through into an economic recession. But I would point out that only 11 percent of U.S. economic growth is from manufacturing and 8 percent of employment. It’s not a huge piece of the economy. The U.S. consumer accounts for 70 percent of growth in the U.S., and the U.S. consumer continues to look pretty strong.

If the manufacturing recession were to seep through into an economic recession, it would have to be transmitted through the consumer, and there are three main ways I could see that happening.

The first is, as the manufacturing industry slows and industrial production falls and business confidence falls, companies start cutting back. That would affect their investment, but it would also affect their hiring. So if the labor market were to weaken, that would affect consumer spending.

The second way is if there are a whole bunch of headlines about trade wars and currency wars, and geopolitical risk and consumers get spooked and consumer confidence falls significantly — that would affect consumption as well.

And then the third way would be if there were a stock market crash, and that really hurt some people’s wealth because they were holding so many stocks and then they reined in their spending.

Ireland: Right now, if you take a look at the sources of the slowdown in the first half, it’s entirely in the investment sector and that’s part of what suggests that trade policy or uncertainty about trade policy is playing a big role.

On the other hand, if you look at workers and consumers, the economic outlook has been and remains really quite strong. Unemployment’s low, labor force participation and wages finally have started to go up, consumer spending is very, very strong.

It resonates with what we see — workers and consumers going around, stores and restaurants are full of people, everybody on the street it seems has a brand new car or S.U.V.

  There’s a lot of confidence on the part, I think, of the ordinary American consumer.

The big question is: If we are going to have a recession soon, it’s going to be because the weakness in manufacturing somehow spills over and affects consumers as well. But there’s no sign at all that that’s happening, yet.

How much of this is linked to the Trump administration’s trade war with China?

Greene: Business investment has been pretty bad. There was hope that the tax bill would encourage a whole bunch of new investment but that hasn’t happened, and a big reason why is uncertainty around trade.

I’ve heard by talking to CEOs of companies and Fed presidents, they report that companies are saying that there’s so much uncertainty around trade that they were thinking about investing, but they’ve gone ahead and decided to hold off.

So it’s not that firms are cutting back yet, but they’re not going out and investing either. And I think that trade is a huge piece of that. We’re kind of in the worst scenario we could be in terms of business investment, because we’re going from one clear system to another.

So previously, everyone considered globalization good, protectionism was considered bad. There were sort of international rules on trade that everyone played along. And now we’re in this weird middle ground where it’s not totally clear that globalization is all good. The U.S.

is putting out some pretty protectionist policies, we’re imposing tariffs, and we might be going to a new system. Even if that system were a totally protectionist system where we decide globalism is bad — as an economist I think that would be a bad thing — but businesses would figure out how to operate in that new system.

It’s just this middle ground where we’re in transition that’s really hard for businesses because they can’t figure out what the rules of the game really are.

Ireland: Uncertainty about trade policy definitely seems to be a big factor. Now, that said, there are other factors at play as well.

It seems the Chinese economy is slowing down anyway, and it’s also true that there are ongoing problems in Europe regarding Italian debt problems, Greek debt problems have not completely vanished, there’s Brexit.

Trump doesn’t really have anything to do with any of that. I would say it’s a significant factor, but it’s not the only one.

Everybody understands that China will be uniquely China no matter what in the same way that the United States must be the United States no matter what. We may share values and systems of government to some extent with Europe, but our way is ours and their way is theirs.

But for decades, it looked China was moving closer to the American system of government and of economics with free markets and closer to democracy. And lately, it seems they’re moving in the opposite direction.

Things serious concerns about intellectual property or ordinary Americans hearing about Chinese hackers interfering with United States information systems — it just gives you a bad feeling that instead of being friends with differences that could work out, maybe we’re not so close friends after all.

If that’s the way things go, it’s going to be true — patterns of trade, patterns of doing business and even worldwide political considerations are going to be different in the future than they were in the past. That’s certainly going to have an impact on the economy as well.

What are some warnings signs of a recession that we should be on the look out for?

Greene: You could look at PMI data — purchasing managers index. Companies are asked about their expectations for new orders and employment, output and input costs. And any score above a 50 reflects an expansion, and any below 50 reflects a contraction.

The PMI data tends to lead a recession by a couple of months, so if you see manufacturing and services going to contraction then that’s a good indicator that a recession is coming. [Note, on Tuesday it was reported that the PMI fell below 50, the lowest point since January 2016.


We’ve seen the PMI data outside the U.S. for manufacturing fall below 50, so that’s worried some people. But in most developed countries, actually in China as well, services are a much larger percentage of growth than manufacturing. I think seeing both manufacturing and services fall under contraction would be an indicator.

I would also say employment data tends to be backwards looking, because it’s just reporting who was hired last month but it’s a high frequency indicator, so it comes out every month. As a result, it’s also a pretty good indicator of a recession. You find that when unemployment rises for a couple of months in a row, then that’s a good indicator that there’s a recession coming.

Ireland: What I would really look for, because the economic picture has been so sharply divided between business spending and the consumer-worker side of things — if we were heading into a recession later this year — what we’d start to see are the monthly employment figures coming in significantly slower, so instead of a 100,000, 150,000 or 200,000 new jobs per month, it would be more 50,000 or even negative — distinctly subpar employment growth. wise, if we saw the unemployment rate tick back up, if people were being laid off, that would be a concern. And then third, if we began to see serious weakness in consumer spending.

Is there anything the U.S. can do at this point, from a policy standpoint, economic standpoint, that reduces the risk of recession?

Greene: It depends on which economic policy makers we’re talking about. I know that the Fed has cut rates and may well do so again, and that can help interest-rates-sensitive sectors mortgages and cars, auto loans.

That could be one contributor.

But generally, I think businesses aren’t holding back on investment because borrowing costs are too high, it’s because of uncertainty around trade, so I don’t think the Fed is going to be the game changer this time around that it has been in the past.

More powerfully, if we could come up with some kind of resolution on trade policy, that would be really helpful. Generally, anything that can help provide clarity on rules would help businesses figure out how to operate in that system.

So trade’s the most obvious one. Otherwise, in terms of avoiding recession — because rates are already pretty low and cutting them probably won’t help much — getting a fiscal stimulus would be really helpful to counteract a recession.

I just don’t think it’s very realistic.

Ireland: If you think an economist and ask where are the incentives for the main players in the game, both Chinese officials and the Trump administration do have an incentive to get some kind of arrangement worked out — maybe not to solve all the problems but to diffuse them later this year or early next. I think the incentives are for the two groups to minimize some of the uncertainty and that will help, too.

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