If I had to pick up a date
for the next recession, it would be
sometime in 2020.
So you can certainly make the case
that there's a lot of areas where
things look a bit unsettled.
The fact of the matter is people
are looking and saying, I don't feel
like it's any easier to pay my bills
this year than it was last year.
The so-called Great Recession ended
more than 10 years ago.
Since then, the United States has
been in its longest economic
expansion in history. But good
times don't last forever.
We're basically in an industrial
recession, a global one.
And it does remind me to 2016 to
even '98 where the US was OK,
the rest of the world was not.
Understanding how the economy tends to
evolve, we would put the
number around maybe 25 to 30 percent
chance of a recession over, say,
the next four-quarter horizon.
We have to recognize there's a
difference between a slowdown and
recession. We're still not
in a recession camp.
Short run economic forecasting is
a is a black art.
Nobody does it very well.
For what it's worth,
people who are tracking are
feeling moderately depressed right now.
They're seeing slow
growth right now.
And the markets, the bond market is
acting as if there's a pretty
good chance of a recession sometime
in the next year or so.
But who knows?
There are all kinds of things
that could be going wrong.
China is clearly struggling.
Europe may very well actually
already be in recession.
We probably are suffering the
deflation of the tech bubble.
Corporate debt has gotten, it, I've
been saying there's no one thing
this is if we're going to have
a recession, it's going gonna be a
smorgasbord recessions, it's going to be
no one thing, but just a
bunch of different things. Why
all the doom and gloom?
Mainly, it's because the bond
market recently flashed warning signs
that a recession could
be on the horizon.
Other economic indicators,
like U.S.
manufacturing activity, were also
lower than analysts expected.
So when could a recession hit?
And how will we know?
It's been now quite some time since
the 2008 recession, so the US
economy has been growing for 10, 11
years is a very long expansion.
We've seen recently, if you just look
at the popular press, a bubble,
I would say in
discussion about recessions.
Everyone wants to talk about it. Is
there one just around the corner?
The fact that the expansion has
lasted so long has no predictive
power whatsoever for whether a
recession will start tomorrow.
If I had to pick a date for
the next recession it would be sometime
in 2020. We're in
a self-reinforcing, virtuous cycle.
Lots of jobs, low unemployment,
wage growth is accelerating, that's
supporting more consumer spending, which
is causing businesses to
hire, which is
pushing unemployment down.
So we're in a very virtuous cycle.
That's pretty hard to break,
but it can get broken.
And in my view, that
probably would occur in 2020.
So the policies, the economic
policies that the administration is
pursuing is doing damage
to the economy.
And that's going to become increasingly
more obvious as we move
through 2019 and 2020.
And that's why I think 2020 is the
day of reckoning — if there is a
day of reckoning, that's when the
economic expansion will end and a
recession will ensue. So
let's define a recession.
The official designation of a recession
comes from a place called the
National Bureau of
Economic Research.
It defines a recession as the period
between a peak and a trough of
economic activity. The organization doesn't
give a set definition of
economic activity, but looks to
indicators like domestic production,
employment and retail sales.
We do have business cycles.
God hasn't conquered
the business cycle.
President Trump hasn't conquered
the business cycle.
And it's hard for the Fed to
conquer a business cycle, but they can
at least try to smooth it
out as they go through time.
There are some other things outside of
the country that could come to
infect us. I'm especially
worried about Europe.
I think the European Central Bank
has conducted a policy that has
hidden some really bad credits, not
just in Italy, but elsewhere.
If I come to you and say I'm going
to lend you money and by the way,
I'm going to pay you to take
it, you're going to make mistakes.
You're going to stretch out on your
risk spectrum and you're going to
make some bad decisions.
That's human nature.
It's not quantifiable.
It's just human nature. Another
commonly accepted definition of a
recession is two consecutive quarters or
six months of negative GDP
growth. But not everyone agrees
that's the best measure.
And it's not the official
marker of a recession.
There are many good reasons to care
about GDP, but there's a lot of
other things that real human beings,
not just economists, also care
about. The first is
think about inequality.
GDP tells us how big the
size of the pie is.
It doesn't tell us whether
people are getting fair slices.
So we should care about the distribution
of income, not just how much
of it there is. GDP only tells
us how much of it there is.
GDP tells us about the value of
all goods and services bought and
sold in markets.
But a lot of really important
stuff doesn't happen in markets.
We could double GDP tomorrow,
it wouldn't be that hard.
What we do is we'd force everyone
to stay at work twice as long.
Force everyone to work twice as
many hours, we'll probably get
roughly, maybe a little bit less,
but nearly twice as much stuff.
GDP would nearly double, but I
reckon people would be miserable.
The Bureau doesn't give a
time requirement in its definition.
Instead, it says a recession can last
from a few months to more than
a year. In 2018 we
had nearly 3 percent growth.
That's not sustainable, nor is it
normal for this business cycle.
A normal pace of growth for this
business cycle is a low 2 percent
handle. And that's what we think
we're going to see this year.
But a growth moderation does
not necessarily equal a growth
contraction or a recession.
And what's worse than a recession?
A depressio.
That's defined as severe economic
decline the lasts several years.
All this means we can only confirm
we're in a recession once it's
already started. The challenge with
identifying risk is that it's
very hard to know in real time which
factor is going to end up being
what shocks the economy.
So we can attempt to look at
the potential areas of concern, and
China would be certainly
one of them.
And it's not just China, it's how
that spills over to Europe, the
data in Europe has weakened so
there's lots of connection there as
well. So you could certainly make the
case that there's a lot of
areas where things look
a bit unsettled.
In the 2008 recession, economic output
hit a peak in December 2007.
But the contraction wasn't formally
announced until December 2008.
In July 2019, the U.S.
officially entered its longest
expansion in history.
That month marked the 121st month
of economic growth following the
Great Recession. Well you know, we
have, we're having the longest
economic expansion since the Civil
War 1991 to March 2001.
My period there, we had monetary policy
all by itself but now you
have a big boost from fiscal policy
and also a new regulatory regime
that came in with, which is
more pro-business, that came in with
President Trump and also
with the Republican Senate.
So I would expect this to be
prolonged perhaps all the way through
next year. We'll see.
While this boom has been the longest,
it's also been the weakest in
several areas. GDP growth and job
growth have been lower than in
previous booms. The absence of
faster wage growth, despite low
unemployment is something
of a mystery.
But, you know, the
economy is always changing.
The way we measured the unemployment
rate is always the same.
But what it means in terms of
how are tight labor markets, how much
bargaining power workers have.
That can change a lot depending on
what the economy is like and it
looks as if we have an economy
right now where between weakness of
unions, concentration of market power
among employers and maybe other
factors, we just don't understand
what looks like this historically
low unemployment rate isn't actually
translating into the kind of
bargaining power that workers
used to have.
Manufacturing is not going to come back
to the United States to the
we're not going to recreate the
golden era of capitalism, the 1950s
or 60s. Even if China didn't
export as much manufactured goods to
us, we're not going to make
mostly apparel in the United States.
We're gonna be importing it
from Vietnam or from Bangladesh.
To the extent that manufacturing goes
back to United States, a
process which is called onshoring,
is going to be robots.
It's not going to be jobs in
the Midwest, jobs in South Carolina.
So in the end, for all
the rhetoric, Trump is not delivering.
And for the foreseeable future
our biggest problem is going to
be a lack of labor, right?
The baby boom generation, my
generation, is retiring en masse.
Every single year for the next 15
to 20 years the labor force
participation rate is going to fall
by a quarter point per annum
because we are retiring.
You know, the global slowdown
is a real thing.
It's just that, for
right now, the U.S.
continues to look pretty
strong to me.
And so, you know, there
things could always happen.
But I'm not looking for a
slowdown in the US anytime soon.
People don't live on GDP.
People live on their paychecks.
And paychecks have not at
best kept slightly ahead of
inflation. Whatever people may say about
the growth number, the fact
of the matter is people are looking
and saying I don't feel like it's
any easier to pay my bills this
year than it was last year.
Is a recession on the horizon?
Most likely we won't know
until it's already started.
