Yes, I can say with great certainty that there is a recession coming.  When exactly it will occur is more difficult to predict but most experts agree that current economic expansion is nearing its end and that the start of the next recession will occur sometimes during the next two years.  Many point to the latter half of 2019, just in time for the next presidential election.  Trump continually takes credit for the country’s good economy which was set on the right path by the Obama administration, therefore Trump should rightly also bear the blame when the economy goes into the toilet.

Predicting that a recession is in our future is certainly not going out on a limb.  Periodic recessions are simply part of way our economy progresses over time.  Prosperous times with low unemployment, increasing wage growth, and increasing GNP (Gross National Product) are inevitably followed by economic downturns with increased unemployment, stagnate or decreased wages, and decreasing GDP.

To understand the normal economic cycle and understand why the upcoming recession is inevitable, and is probably coming soon, take a good look at the figures below.  That table contains information about each of the thirteen recessions from starting with the great depression of the 1930’s to the present.  The first column contains the year(s) when each recession occurred while the second column displays the length recession in years and months.  The third column shows the length of time between recessions in years and months and the fourth column displays the peak jobless rate during each recession.  The fifth and final column contains the maximum percentage rate drop of the quarterly GDP figures.

If you graft the US economy over time it would look like a sine wave, a roller-coaster, and from the great depression to 2009 the average length of time from peak to peak or trough to trough of that rolling wave was 69 months – 6.75 years.  The longest period between recessions during that entire 90 year time period was ten years.  Then note that it has been nine years and five months since the economy began to improve again after the great recession of 2007-2009.  One can easily get the distinct impression that we are overdue for another one.

While exterior factors have been known to help push the nation’s economy into a recession, such Iranian oil crisis of 1973 or the mortgage loan collapse of 20O7, when our economy starts a new downturn the ingredients which cause recessions are almost always already baked into the cake that is our economy. Exterior factors may accelerate the start of a downturn or make it worse, but usually the economy was due to turn south already.

The normal causes of a recession are inflation, high interest rates, reduced real wages, and reduced consumer confidence. These four factors almost always make their appearance when our economy switches from recovery from the last recession into over drive.  It is an economy that is doing almost doing too well which signals that a recession is not too far in the future. It is a classic case of “what goes up must come down”.

The process works like this:  As the economy starts to overheat unemployment drops to low levels and competition breaks out between business entities for the best workers, raw materials to make their products, and the capital needed to expand their business.  This competition leads to higher and higher inflation and consequently increased interest rates. Inflation begins to cut employee’s wages until workers’ paychecks are no longer keeping up with the rising cost of living.  With this reduction of real wages workers start to decrease their expenditures for everything except necessities. With fewer items being bought, factories need less workers. Workers without jobs cut their expenditures drastically, expanding the downward cycle.  As interest rates climb higher and the economy softens companies find they can no longer afford and/or need to expand their operations. Construction work slows with the inevitable job losses.

At some point pessimism starts to seep into the population. Consumers across the nation begin to lose confidence in the economy.  When other Americans this far unaffected began to believe the economy is getting worse, they also began cut back on their expenditures making the situation even worse. The economy is eventually caught in a downward spiral and the country slips into a recession.

It is easy to see where we are currently in this cycle.  Unemployment is very low. Inflation and interest rates are beginning to rise.  The stock market is near all time highs and would be even higher had not Trump’s trade policies introduced uncertainty into the process. The Republican tax cuts have introduced even more financial energy into what was already a very good economy.  Sound economic policy suggests that tax cuts make good sense when the economy is trying to find its way our of a recession. The results of these tax cuts are very likely push the economy into the overheated zone and then on into a recession more quickly.

Yes, a recession is coming.  Commonsense tells us that the coming recession would have occurred earlier had it not taken our economy so long to dig its way out of what was unarguably the worst recession since the great depression of the 1930’s.  And the coming recession is likely to begin before Trump’s present term expires.

As is his normal M.O., while Trump has taken all of the credit for today’s good economy, but he will attempt to place the blame for the upcoming downturn on others.  The most likely target of that blame will be the Democrats who are in the process of taking over the House of Representatives.  However, that deflection won’t stick to the wall except with Trump’s most ignorant supporters.  Rightly or wrongly presidents get much of the credit when the economy is rolling along but also shoulder the blame for recessions which occur on their watch.

Cajun    11/12/2018