Recession Could Become Reality by 2019
Your evening news may be telling you that the U.S. economy is doing great, but a recession could be nearing.
Mark my words: 2019 or early 2020 could go down in history as the period when the U.S. economy fell off a cliff. Be very careful.
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You see, the state of the U.S. economy appears to be great. U.S. gross domestic product (GDP) has been growing at a solid pace, unemployment is at a record low, businesses are optimistic, and consumers have been spending and feeling good about it.
However, one has to wonder: “How long can this trend continue?”
3 Recession Risks That Shouldn’t Be Ignored
There are at least three major risks that could really hurt the U.S. economy and cause a recession. The worst part is that these risks are being overlooked.
The first metric worth watching is inflation. Prices in the U.S. economy have been surging. In the trailing 12 months ended August 2018, inflation in the U.S. was around 2.6%. This was the fastest pace of inflation since 2011. (Source: “CPI-All Urban Consumers (Current Series),” U.S. Bureau of Labor Statistics, last accessed October 9, 2018.)
Why does inflation matter? Inflation is essentially a tax on wealth and buying power. For instance, if you earned two percent on an investment, but inflation was 2.6%, in real terms you actually lost money.
Inflation deteriorates buying power and has a negative impact on consumption. If prices soar, consumers and businesses will buy less with their money. Don’t forget, the U.S. economy is reliant on consumption; if it declines, a recession will follow.
Trade War Could Lead to Lower Profits and Higher Unemployment
The second major recession risk is the full-on trade war that’s going on. The U.S. is fighting for better business conditions around the globe. The trade war isn’t just with China; the U.S. government has been using sanctions and tariffs against other countries as well.
With this, understand that American companies have a presence outside of the United States. As a result of the trade war, their revenue and profits could come under fire.
What do you think corporate America will do to make sure their profits aren’t hurt? The easiest cost for them to cut is labor, as in letting workers go. Therefore, the trade war could harm employment, consumer sentiment, consumption, and GDP.
Global Economy Facing A Lot of Headwinds
Third, there are troubling developments in the global economy that the U.S. may not be able to avoid.
I can’t stress this enough: the U.S. is not an isolated nation. If the global economy sneezes, the U.S. economy gets a cold.
We are currently seeing a revival of economic crises in the eurozone. This time around, Italy could be the epicenter of the problems. My colleague Alessandro Bruno wrote an interesting article about it here: “How Can a Bridge Falling in Italy Trigger a Global Economic Crisis?”
Emerging market economies are also in a lot of trouble. If the problems persist, don’t be shocked to start hearing words like “default” and “economic crisis” in relation to those economies. Major economies are also seeing headwinds.
Where’s the U.S. Economy Headed Next?
Dear reader, my stance on the U.S. economy is to be very skeptical. The tax cuts by the Donald Trump administration gave a lifeline to the economy, but those effects will eventually dissipate.
The odds of a recession in the U.S. are increasing by the day. I believe that the next economic slowdown could end very badly.
I am watching the data carefully, and I believe that 2019 and 2020 may not be good for the U.S. economy.
