January 24, 2019
The dreaded “R word” has entered business conversations more frequently since a fierce selloff began in financial markets in late 2018.
Surely a selloff of such ferocity must be indicative of investors’ sentiment that our economy is nearing a downturn, claim the skeptics. Nonsense, claim the bulls, who counter that most measures of economic vitality and corporate health remain strong and intact—which is absolutely true, but arguably irrelevant with respect to whether we will be in recession within a year or so. Recessions rarely preannounce their arrival, so economists and investors expend considerable effort to predict their timing—with mostly inconsistent results.
A recession is a period of broad economic contraction, typically lasting about 8-11 months. The U.S. economy has experienced 11 recessions in the 73 years since the end of WWII, or roughly one every 6.5 years. However, recessions have occurred less frequently in our working lifetimes, with just three since 1990. The nine-year economic expansion from 1992-2000 during the Clinton years was the longest period of uninterrupted economic growth on record until the current cycle, which began in mid-2009 and is approaching one decade.
Our current expansion is atypical not only in its length, but in its weakness; GDP growth has been erratic and sub-par throughout this recovery. Historically speaking, the U.S. economy is long overdue for a recession, but that fact itself is an insufficient argument to claim that one is coming.