Just Don’t Hold Your Breath

“Comedian” Bill Maher is cheering for a recession. He believes economic devastation is the only way to, “get rid of (President) Trump.” Social media blew up and reminded Maher “recessions are bad.” Maher’s wish is hurtful but, more importantly, wrong-headed. Here’s why.

Based on U. S. economic data, the only safe forecast is a second term for President Trump.

Recession is an economic term describing two consecutive quarters of declining gross domestic product, or GDP. They are bad because people lose jobs, businesses, houses, farms and their savings. In severe recessions people go hungry and anxiety, depression and substance abuse skyrocket. One study linked 10,000 suicides to the 2008-2009 Great Recession.

Thankfully rooting for a recession does not cause one and neither does silly political blather. Elizabeth Warren, for example, sees “a lot to worry about” in our economy. Warren usually describes her worries in vague terms or talks about income inequality, which is a societal issue and has little to do with the economy. The current U. S. economy is quite good.

Facts Matter

The unemployment rate is the best it’s been since 1969. Stock prices are at record highs, as are single-family home prices and consumer confidence. Weekly wages are outpacing inflation after decades of decline. Low interest rates and stable prices indicate continued growth, not a recession. Trade is an issue but is overblown as a force in the U.S. economy.

Trade is about 10 percent of the U.S. gross domestic product (GDP). In comparison trade makes up over 40 percent of Germany’s GDP. The scary headlines about trade wars with China and tariffs on this or that product are largely click-bait, not good economic reporting. Trade news can move stocks on a day-to-day basis. However the broader U.S. economy is generally unaffected.

Recession Not Very Likely

The economic indicators cited above indicate a recession is not on the horizon. There is one highly watched recession indicator that disagrees, the inverted yield curve. When the yield on 10-year Treasury notes dips below yields on the 2-year Treasury it is called an inverted yield curve. The inference is the economy will weaken in a couple years.

Is the inverted yield curve a reliable predictor of recessions? It has proven reliable enough to cause gyrations in our stock markets. History shows that inverted yield curves and recessions are linked but the timing between the inversion and a recession is suspect. “The timetable varies but it is generally within a 24-month period,” said Greg McBride, chief financial analyst at Bankrate.com.

A Lot Can Happen in 24-Months

Arielle O’Shea, investing and retirement specialist at NerdWallet.com, said, “It’s worth keeping in mind that that is just a historical average, not a prediction.” Anyone who watches the economy, or anything else for that matter, knows a lot can happen in 24-months. A recession is surely coming, as they always do. When and how severe? Nobody knows the answer.

The consumer remains solid as the backbone of our economy, bolstered by a labor market that is continuing to hold up well. For the first time in decades middle class workers are enjoying true wage gains. The stock market is volatile because that is its natural state. From a historical perspective the steady run-up since President Trump’s election is a clear outlier.

Employment numbers will likely moderate at some point because the country has a finite number of available workers. Economic growth will settle back into slower pace, which is common with long economic expansions. The bottom line is the European and Asian economies are flat. The U.S. is the biggest and hottest economy in the world, and a near-term recession is not likely. Based on U. S. economic data, the only safe forecast is a second term for President Trump.