It is important to know what the economy has in store so businesses can plan ahead — hire to expand or cut expenses, borrow money or payback loans, etc. We have had sustained economic growth for the last six years plus. Some economists think it’s time for another recession. This is based on the fact that something seems to upset the apple cart every six years since 1960, or 8 years since 1982. The two longest expansions have been nine and 10 years. Opinions regarding the likelihood of another recession looming run from a 10% chance (by the Fed) and 25% (by JP Morgan), while Bloomberg news predicted a 65% chance last year. The stock market did fall due to lower oil prices, which was thought would to cause a recession, though recessions generally cause oil prices to decline, not the other way around. In fact, no one knows what will really happen and these forecasts as good as a 10-day weather forecast.
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Recessions can’t be timed like the old faithful. There are underlying factors that cause a recession and nothing lasts forever; sooner or later, some events will precipitate a recession. Here are a few that have led to the recent few downturns: wild market speculation (like the dot.com/Y2K bubble and housing booms); raising interest rates and tight money; high unemployment; unfunded borrowing; defaulting on our debt; financial shenanigans; the failure of large financial institutions (S&Ls, investment banks like Lehman Brothers) as well as key industries like autos.
High growth (5% or more) eventually causes a recession, like in 1981, 1990, 2001 and 2008; our current growth is at a more sustainable 2-2½%. Modest sustained growth would reduce the chance of a near-term recession. But the conditions that led to the sub-prime mortgages and derivates recession have not fully been dealt with. And there are always new and unrecognized risks (black swan), i.e. cyber and physical terrorism, war, political instability, natural disasters, etc.
As I said, no one knows when the next recession will hit. It may be soon, it may be a few more years. But wise company leaders will have plans in place to execute once the true signs are there that one is beginning.
