Why 121 Months of Economic Growth Could be TOO LONG

At present, we are in the middle (or, arguably, nearing the end) of a record-setting period of national economic growth. The U.S. economy has been growing for the past 121 months, which is the longest period of time since records begin in 1854. Unemployment is at a 50-year low, and inflation is, to use the Fed’s word, “subdued.” However, many analysts have begun to hint their outlooks for the remainder of 2019 and into 2020 could include an economic downturn or even a recession.

Federal Reserve chair Jerome Powell is one such economist. Last week during testimony to the House Financial Services Committee, Powell said a combination of consumer and investor concerns about trade tensions with China, the rising profile of a looming federal debt ceiling, and rising household and business debt around the country could ultimately lead to slower economic growth on a national and global scale. “A number of government policy issues have yet to be resolved,” Powell explained.

J.P. Morgan Chase chief equity strategist Debravko Lakos-Bujas chimed in, “Markets are on thin ice.” He warned that markets could shift downward by more than 16 percent if investors begin to panic over trade tensions. On the other hand, he said, there is “an upside scenario of 3,200 to 3,300 for the S&P” if investors feel confident about U.S. trade policy.

The MAX Factor

If trade policy doesn’t take down the economy, other economists worry that Boeing’s ongoing 737 Max 8 model crisis could put a dent in certain primary economies. In fact, J.P. Morgan Chase warned this past April that an extended Boeing slump – which is looking more and more likely – could create serious problems for the Dow Jones Industrial Average, of which it makes up nearly 11 percent, and for important STEM (science, technology, engineering, math) economies that rely heavily on Boeing and Boeing-related companies’ activities to support employment demands in the area. Boeing already cut airplane production by 10 airplanes per month. J.P. Morgan chief U.S. economist Michael Feroli warned at the time of that cut, “If, at some point, they have to stop production…that would mean in a quarter in which production stopped you could see GDP growth rates decline by over half percent.” That same hit, Feroli added, “could take about 0.15 percent off the level of GDP.” Just this week, Boeing warned it is unlikely its 737 MAX planes are unlikely to fly before 2020 due to the time needed to fix flight-control software and “complete other work.”

Debt Will be Key in Next Recession

As the extended period of economic growth continues to extend and investors begin actively looking for signs the economy might falter, many believe household debt levels will ultimately bring on the downturn. Although the past 121 months have been very good for the national economy, analysts warn households that borrowed out of necessity during the Great Recession have yet to fully pay off that debt and, furthermore, will face delinquency quickly if their household budgets are once again strained. Given that student- and auto-loan debt are presently at record highs, hovering at just under one-fifth of all after-tax income in2018, an economic slowdown could squeeze families with no room in the budget to spare.

The Economy Might Get a Second Wind

Although plenty of investors and analysts believe we are overdue for an economic downturn, there are economists who speculate the U.S. economy could snag a “second wind” if things line up right. “Nothing about this halting recovery from the Great Recession of 2007-2009 has been normal, and that makes forecasting its demise especially tricky,” observed USA Today reporter Paul Davidson. He speculates that the “slow and steady” evolution of the current economy has led to a distinct lack of the “kind of excesses that have doomed past recoveries.” This, Davidson said, could “possibly give it a longer lifespan.”

Mark Zandi, chief economist at Moody’s Analytics, appeared to agree, noting, “We’ve been jogging, not sprinting” toward a full economic recovery. However, Zandi added, “I think the economy is on a razor’s edge. It can go either way.”

Tell us what you think:

  • Are we heading for an economic downturn in the near future?
  • What do you think could stop our current economic growth?
  • Are you worried about another recession?

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