4 Signs That Another Recession Might Be Coming
America’s last Great Recession occurred between December of 2007 and June of 2009 — making it the nation’s longest economic recession since the Great Depression. While the strength of our nation’s economy has improved in recent years, some economists, market observers and investors believe that another recession could be right around the corner.
According to the National Association of Business Economics (NAME), approximately 60 percent of professional economists predict that a recession will occur by the end of 2020. However, other experts believe that a recession won’t happen in 2019 or 2020, instead occurring sometime within the next two years. As such, the nation may have some time to prepare.
Will the next economic downturn be as severe as the 2008 recession?
Before we talk about the signs that another recession may be right around the corner, let’s talk about what it means for a recession to occur. According to experts at Forbes, recessions are a natural part of the nation’s economic cycle, which occurs as the economy contracts and expands.
Moreover, a recession can be defined in one of two ways. For instance:
- A recession can occur after several months of economic decline.
- A recession can occur after the U.S. experiences two consecutive months of negative Gross Domestic Product (GDP) growth.
When the financial crisis of 2008 occurred, the U.S. experienced a GDP decline of 0.3 percent in 2008, followed by 2.8 percent in 2009. If another recession were to occur within the next few years, some economists believe that it would be mild in comparison to the financial crisis of 2008.
Forbes also says that an economic recession is not the same thing as a depression. A depression is more severe, lasting about three to four years. Additionally, a depression occurs when the U.S. experiences a decline in GDP growth of at least 10 percent.
While the next recession could happen within just a couple of years, not all experts believe that it will be as severe as the last. In fact, some experts believe that recessions can be ideal opportunities for long-term investors, some stock trading professionals and companies dealing with debt.
Potential Recession Indicators
Economists pay close attention to major economic trends and indicators to look for signs of a coming recession. While one major indicator includes predictions from the Conference Board’s Leading Economic Index (LEI), recent LEI data tells us that our economy is experiencing modest growth. In July, for instance, America’s LEI increased by 0.5 percent after two months of minor declines.
While this data is promising, other indicators tell us that another recession could be around the corner, despite steady growth in the U.S. economy.
1. The manufacturing industry is in a Recession
One indication of an upcoming economic downturn in America is that manufacturing across the nation is experiencing its own recession. When the nation’s manufacturing sector is in good standing, it can indicate strong economic health. However, U.S. factory activity recently reached its lowest point in three years, according to Reuters. As per financial experts at CBS News, increased tariffs and unresolved trade disputes with China are largely responsible.
While these factors alone may not be enough to throw the entire U.S. economy into the next recession — especially since the manufacturing industry no longer drives the nation’s economy — some experts and laypeople alike fear that President Trump’s trade war with China could lead to financial problems. According to Newsweek, some economists even fear that a global recession could occur as a result of the trade war with China.
2. Business investments have slowed
Some economists believe that another Great Recession could occur if business investments continue to slow. When businesses stop spending money, they also stop hiring new employees. When this happens, fewer jobs become available and the unemployment rate rises. Unfortunately, some economists believe that unemployment could begin to rise by the spring of 2020.
According to CNN, the hiring of new employees has already slowed by about 25 percent in comparison to this time last year. Additionally, hiring has slowed since April 2019. While U.S. businesses added about 175,000 new jobs in May, just 169,000 were added in April, the lowest number of U.S. jobs added since January of 2014.
3. The U.S. Treasury yield curve is inverted
An inverted U.S. Treasury yield curve is usually one of the first signs of a slowing economy. However, it can take nearly three years for an economic recession to appear after the curve first inverts.
In recent months, the U.S. Treasury yield curve became inverted for the first time since the financial crisis of 2008. First, the yield curve inverted on December 3, 2018. Then, it inverted again on March 22, 2019, followed by a third time on August 12.
Now that the nation’s yield curve is officially inverted, many financial experts believe that the next recession could be right around the corner. While not all experts agree with this concept, an inverted yield curve has been used to predict U.S. recessions throughout the past 60 years.
4. Consumers are uncertain about stock market futures
Consumer uncertainty around stock futures can also affect the health of the economy. According to CNN Business, instability in the current stock market reduces consumer spending as Americans begin to lose confidence in the strength of the U.S. economy. Once consumers begin to lose confidence, they cut back on the spending of higher-priced items like appliances and automobiles.
While consumer uncertainty about recent stock market data affects the economic health of our nation, it can also harm retailers and lead to layoffs and store closings throughout the U.S. When this happens, smaller retailers and larger chains such as JCPenney or Macy’s can both take a hit.
How to Prepare for a Recession
After the Wall Street crash of 1929 and the financial crisis of 2008, the U.S. economy experienced devastating effects such as high rates of unemployment, lost stock wealth and decreased home values. The nation’s next recession could be milder than these two devastating events, but MarketWatch says that an alarming 71 percent of Americans would not be ready for another recession if one were to occur today.
While consumers cannot do a whole lot to prevent another recession from occurring, they can take steps to protect their finances. Here’s how:
- Reduce debt by repaying as many outstanding balances as possible, especially credit card debt.
- Open a high-yield savings account that can be used to cover expenses in the event of a financial emergency.
- Eliminate any unnecessary monthly expenses, including subscription services.
Should you purchase stocks before a recession?
While this is a risky practice, some consumers may benefit from investing in stocks, real estate or mutual funds before or during a recession. Currently, some of the best stocks to invest in according to financial experts at Fortune include Best Buy (BBY), Citizens Financial Group (CFG), Lennar (LEN), and CVS Health (CVS). However, learning how to read a stock market graph and understand premarket data are some of the first steps to finding and purchasing stocks as a beginner investor.