First of all, anyone who is willing to confidently forecast a recession, in the short to the midterm, must have supernatural insight because mere mortals can never be sure.

I would like to share a few observations about what I see both nationally and locally that we need to keep our eyes on. In late 2018, there was worry about a significant economic slowdown. And yet the first quarter 2019 growth rate was a healthy 3.1 percent. The second quarter slowed down to 2 percent.

The United States has now posted the longest economic recovery or economic expansion in history. The recovery started in June 2009, and growth was relativity slow during the Obama years. In my opinion, presidents get too much blame or credit.

For a variety of reasons, during the Trump years so far, the growth has been more rigorous, but there is a growing concern among some economists that the good times may be ending. Recessions can be severe such as the 2008-2009. But as Harry Truman said, “It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.”

Sooner or later, whether it is one year or five years, we will have a contraction, but with good policy and some luck, we may be able to engineer a “soft landing.”

Inevitably, politics get mixed in with economics. The Republicans and President Trump see massive reasons for cheering. Democrats say that the growth and prosperity have mainly favored the rich. The truth is somewhere in-between.

But as we go into the 2020 campaign, the rhetoric is getting sharper and sharper. Unfortunately, Bill Maher (so-called comedian), and no friend of Trump has even said he is hoping for a recession so that the president will lose the election. Frankly, no one should ever hope for a downturn because of the human suffering for millions of people.

An economic recession is when we have “negative growth” or contraction for two quarters (6 months) in a row. Usually, we can only call a recession after we have entered one.

Without getting into technical economic jargon, let’s discuss four concerns and four reasons for continued growth. First four points of concern.

1. Business and/or consumer spending slowing significantly. Nationally we see businesses have already started to be more conservative. Locally in Kankakee County, we have been fortunate to see significant expansions such as Nucor, CSL and other companies. What seems to be driving the economy now is vigorous consumer spending.

Consumers still are optimistic, but if that changes, it is a reason for extreme concern. As Janet Yellen, former chair of the Federal Reserve says, “People stop buying things, and that is how you turn a slowdown into a recession.” In the last few weeks, though, she said she does not see a recession in the short term.

2. Interest rates falling lower and an inversion in the yield curve. Because of the risk associated in long term investing, the 10-year rate should be higher than the two-year rate. Recently that has inverted. It has been fluctuating almost day by day. In the past, a yield rate inversion has often forecasted a future recession.

Another concern is with low-interest rates, those living on a fixed income may see the rates on safe CDs and other guaranteed instruments fall in the future as they reinvest.

3. Worldwide slow down and recessionary trends. The economies of Europe, in particular, are concerning. The powerhouse German economy may already be in recession. The slowing of China, Japan and other trading partners can cause problems.

4. Trade war concerns. Frankly, this is very controversial. A trade war can do significant damage. While most Republicans and Democrats would rather stay away from such a war, leaders from both parties are concerned with a variety of abuses on the part of China.

These include the theft of billions of dollars of intellectual property. If the trade war gets out of hand, consumers in Kankakee County may have to pay higher prices because of tariffs. Also, farmers and businesses that buy and sell internationally could be impacted negatively.

Next, let’s focus on more optimistic signs.

1. Continued strength in the consumer sector. Nationwide we have impressive low unemployment for all sectors of the population. People are working and spending-not only for durables like refrigerators and cars, but for “experiences” such as vacations and travel, patronizing restaurants and so forth. After years of stagnant wages, they are rising again at about 3%.

2. Lower interest rates have a positive side. As mentioned above for savers, low-interest rates hurt. But if you want to finance a car or house, rates have fallen fairly dramatically. One exception I would caution you on is credit cards.

Rates tend to be “sticky” on the upside. They are raised when general interest rates are rising but do not come down nearly as quickly. The Federal Reserve is likely to cut rates again in September to “goose” the economy to counter some slowing.

3. Wealth effects. Depending on where you live in the country, the value of your home has seen a substantial increase since the catastrophe of the 2008 real estate collapse. Even in a rising price environment, there are many good buys, and with the falling interest rates for a mortgage now is a good time to buy.

The stock market, while volatile, has almost tripled from the 2009 “crash.” While the market could go higher or lower, those with 401ks, pensions, and other investments have seen fantastic returns.

4. Increased savings. Because of vigorous gains in employment, increased wages, and modest inflation, many people are saving more. This can give them buying power in the future and a willingness to take on debt for large, durable purchases. While it is good to save and build a rainy-day fund, there is the strange “Paradox of Thrift” that Janet Yellen eludes to.

It works like this: If too many people worry about their own future and their jobs and they start saving excessively. If millions of people do this, taken together, overall consumption in the macro-economy will go down. In the process, you may lose your job because too many other people stop buying the product or service you provide.

And then you have to spend your savings to survive. Still for the individual, more saving is better than more unsecured debt-especially expensive credit card debt.

While I should know better, I still am going to make a prediction. I think there is a 25-30 percent chance we could have a recession before the end of 2020 and 40-50 percebt chance during 2021. During election years, politicians do everything they can to avoid a contraction.

But elections do have consequences, and depending on the outcome, it could radically change my forecast. On that topic, though, I plead a Sergeant Shultz, “I know nothing.”

Dr. Don Daake is professor emeritus at Olivet. He has an MBA from the University of Iowa and a Ph.D. from Florida State University. He has taught a variety of subjects, including statistics, marketing research, and business strategy. He can be contacted at ddaake@olivet.edu.

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