The Next Recession Brewing in 2020? It’s Possible
You really have to wonder if 2020 could be the year when the U.S. economy falls into a recession.
Why? Because the economic data has been taking a turn and it says the outlook seems gruesome.
If you listen to the mainstream media and pay attention to just the headline data like gross domestic product (GDP), you could have a completely different take on the U.S. economy. At this point, you could be thinking that growth, rather than a recession, is ahead.
You must dig into the details, however. Look at the data below the surface.
U.S. Manufacturing Sector Says Recession Likely Ahead
Look at the manufacturing sector of the U.S. economy, for instance. It could be considered a leading indicator of recession or growth.
If manufacturers are operating in full gear, it’s a sign that things are improving.
If we see the opposite, a lot of trouble could be ahead. In fact, it wouldn’t be wrong to say that, if manufacturing activity in the U.S. drops, it could be an indicator that the economy is in a recession or fast approaching it.
With that said, look at the chart below. It plots the year-over-year change in new orders of durable goods at manufacturers in the U.S. economy.
(Source: “Manufacturers’ New Orders: Durable Goods,” Federal Reserve Bank of St. Louis, last accessed January 6, 2020.)
This is a troubling chart, and it’s very unlikely that you will see it often. Mind you, durable goods are products that last for long time—things like appliances and furniture.
In August 2018, new orders for durable goods were growing in the double digits.
Now the situation is completely different. In November 2019, new orders for durable goods at manufacturers declined 3.4%. Since April 2019, on year-over-year basis, these orders have declined every month except July.
Why the Next Recession Could Be a Problem
Dear reader, this is all too scary.
I am watching the manufacturing activity in the U.S. economy and it’s concerning. I ask if it is hinting at a recession for the U.S. economy or if the economy is in a recession already.
Here’s why I am really worried.
You see, recessions are part of the business cycle. Every economy goes through recessions and growth; it’s normal. For the U.S. economy though, the next economic slowdown could be very critical.
We already have low interest rates, something that the Federal Reserve uses to manage the economy. Between 2015 and 2018, the Fed tried to raise rates, but it sent shocks to the economy. I am worried about what will happen in the next slowdown. How low could the Fed take interest rates in order to fight the slowdown?
I worry that the next recession could trigger the Federal Reserve to implement a negative interest rate policy (NIRP) and print a lot more money than it did in the previous recession.
We won’t even need a financial crisis like the one we had back in 2008–2009 for the Fed to take extreme measures.
Let me end with this: NIRP and printing more money would be a major problem. Negative interest rates and printing money reduces the buying power of Americans and causes bigger problems in the long term.