The US is ‘Years away from a recession”
Many economists, pundits, and talking heads are forecasting that the US is close to entering a recession.
The recession could come inY 2020, but some argue it could start as early as next year. While there are a number of signs that point to that conclusion, a closer examination reveals that we are years away from a recession.
Those who say a recession is eminent point to a number of factors to support that conclusion.
Some economists who study the business cycle note that recent history shows that the US economy has a recession once every 7 to 10 years. There was a recession is Y 1981, another in Y 1991, another in Y 2001 and then a recession in Y 2008. The last recession ended in Y 2009, meaning that by next year, 10 years will have passed since the last recession ended. They say a recession is over due.
A closer examination of the fundamentals of the US factors reaches a different conclusion: the US is probably years away from recession.
The Fed will possibly raise interest rates again in December, but recent reports indicate they will be less aggressive next year. In addition, while interest rates have already increased seven times in the past two years, they are still below historical averages. As such the higher rates may not be a significant drag on the economy.
Business cycle theorists may also be wrong. That’s because the US just entered the expansion phase in Y 2018.
Typically after recession, the economy spends a year or so in recovery and then enters a 4-7 year expansion. Because the Hussein Obama Administration set policy goals to cure perceived social injustices, rather than encourage economic growth, the economy got stuck in the recovery stage for more than 8 years.
Then, when President Trump reversed growth stifling regulations and reduced tax rates, the economy entered expansion. Since the economy has just entered expansion and expansions tend to last 4-7 years, a recession in the near future seems unlikely.
Trade policy being a drag on economic growth seems unlikely.
Already new deals have be made between Mexico, Canada, SKorea and Japan. The EU has agreed to work with the US toward a no tariff policy on automobiles. And China, which is suffering far more than the US in the trade dispute, has started to negotiate in earnest.
So, we believe that by early next year the US will have new trade deals which will open foreign markets to US companies. That will increase economic growth well into the future.
Regarding the Trump tax cut
The tax cut was not a 1-shot reduction in taxes, but permanently lowered tax rates for nearly all Americans and every US corporation. That means the effects will be felt year yearly, every year.
And lastly, the Democrats may try to raise taxes.
Their More Fair policy means setting tax policy so that they take more money away from people that earned it and give it to people who have not earned it.
President Trump will refuse to sign or even veto, any legislation that attempts to do that.
Barring any geopolitical shocks, the economy should grow by 3% to 4% next year and could be higher in Y 2020. President Trump modeled his tax cut after what President Reagan did in Y’s 1981/1982. Then in Y 1984, the economy grew at about a 7.5% annual rate.
There will likely be no recession in Ys 2019 or 2020
Making and Keeping America Great!
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