Recession Could Be Right Around the Corner for the U.S. Economy
At this point in time, it could be very foolish to assume that all will be great for the U.S. economy. A recession is looming, so don’t get complacent.
In fact, it wouldn’t be wrong to say that a recession could be right around the corner for the United States.
Before going into any details, let’s answer one simple question: What is a recession?
In general terms, a recession is when you see an overall decline in economic activity. For example, you see factories producing less, demand declining, fewer jobs being created, and so on and so forth.
In technical terms, a recession is when a country’s gross domestic product (GDP) declines for two consecutive quarters.
As it stands, if you look at the general definition of a recession, the U.S. economy could already be there.
Manufacturing Activity Tumbles
Look at the charts below. It plots the year-over-year change in the monthly manufacturing activity in the U.S. economy. Pay close attention to the trend.
(Source: “Industrial Production: Manufacturing (NAICS),” Federal Reserve Bank of St. Louis, last accessed September 17, 2019.)
Over the last year or so, manufacturing activity in the U.S. economy has been slowly dwindling. It’s something you see in times of an economic slowdown.
Between April and August 2019, manufacturing activity witnessed an outright decline in three of those five months. Scary.
Manufacturers Preparing for the Worst?
Demand in the U.S. economy continues to decline as well—another indicator that a recession is already here or we are headed toward one.
Look at another chart below. It plots the year-over-year change in the monthly inventories level at U.S. manufacturers.
Before you look any further, know this simple rule of economics: when businesses expect demand to pick up, they build up their inventories. The last thing they’d want is to not have product when it’s time to sell. On the flip side, companies cut back on their inventories if they think demand will decline.
(Source: “Manufacturers Inventories,” Federal Reserve Bank of St. Louis, last accessed September 17, 2019.)
Based on the data from the past year, it seems like manufacturers are expecting demand to be dismal.
In August 2018, their inventories were growing by nearly six percent. Now this rate is just three percent. So on a percentage basis, manufacturers’ inventory growth rate has plummeted by almost half.
Here’s What Could Happen in the Next Recession
Dear reader, don’t let anyone tell you that everything is great with the economy.
The two charts above are sending a very loud and clear message that a recession is here already, or could be inevitable in the near future. Though, don’t for a second think these are the only indicators that tell us that conditions in the U.S. economy are bad. There are tons of other data sets that say the same.
Keep in mind, it takes a while for economic data to show everything.
I can’t help but say to be careful.
Let me also say this: if you think the next recession will be over soon, you could be making a big mistake. This recession could require a lot more effort from the Federal Reserve and the U.S. government. Also, don’t be shocked if we see negative interest rates in the U.S. economy because of the next recession.