First of all, when will we have the next recession?
Posted February 26, 2015 by Ben Carlson
From 1836-1928 the U.S. averaged a recession every 2.1 years. This included seven depressions (they were actually called panics back then) that led to an average contraction of 29% in business activity. Part of this had to do with the fact that the U.S. was on the gold standard at the time, but it’s also true that the U.S. was once an emerging market.
Following the Great Depression, the U.S. hasn’t experienced that type of business contraction since. Although it was the worst recession in the post-WWII period, even the Great Recession was relatively mild compared to the panics and depressions from the 19th and early 20th centuries. Here is a list of every recession since the Great Depression began in 1929 (click to enlarge):
You can see that roughly every four years the U.S. has entered a recession. Even though they’ve been more spread out after WWII, recessions have still occurred once every five years or so since then. The longest period of calm in the economic cycle was during the 1990s when the economy went a full decade without a down cycle. It’s been just shy of six years since the last recession technically ended, so it makes sense to consider when we’ll see the next one.
Recessions don’t necessarily follow a set schedule, but you can be sure that the business cycle will rear its ugly head eventually. And just like stock bear markets, most investors will be shocked every time the next downturn hits.
Even if we see a ten year stretch between recessions, matching the longest one (between March of 1991 and March of 2001), the next recession would begin in July of 2019, within the term of whomever is elected as our next President four days from now. If we look at the time periods between the last three recessions, we’ll see an average of 8 years between them . . . and that average would give us a recession starting next year.
The October figures released today were praised as showing unemployment falling to 4.9%, but, in reality, it was fairly steady; the ‘official’ U-3 unemployment number was the same as two months ago, and if it fell by 0.1 percentage point from September, it was also just 0.1 percentage point below October of last year.
The supposed bright spot in the October figures was that wages were increasing at a 2.8% annual rate:
— Heather Long (@byHeatherLong) November 4, 2016
Real average hourly earnings increased 1.0 percent, seasonally adjusted, from September 2015 to September 2016. This increase in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 0.8-percent increase in real average weekly earnings over this period.
A wage growth of 2.8%, on an annualized basis, as reported for October, is kind of meaningless, if over the course of a year it gets washed down to 1.0%, or less.
Two stark facts come into play:
- Real wages, though growing, have been growing very slowly.
Although current wage growth is in line with historical averages, wages may be just recovering ground lost to the recession.
Wage growth since 2006—the first year in which all six data sources are available—has been lower than most historical averages, but still positive. Four of the measures are clustered around 0.45 percent annualized growth, while two measures of hourly earnings offer an optimistic dissent.
- The American Middle Class is shrinking as a percentage of the population.
After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data. . . . .
Middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013.
In effect, the middle class are both smaller and poorer, and if that makes the total impact on the middle class smaller when the next recession arrives, it won’t be any easier on the individuals in the middle class. If the middle class haven’t completely recovered from the economic damage of the recession, when the next recession hits, they will fall even further behind.2
Americans think the economy is in far worse shape than it is.
The U.S. unemployment rate is only 4.9%, but 57% of Americans believe it’s a lot higher than that, according to a new survey by the John J. Heldrich Center for Workforce Development at Rutgers University.
The general public has “extremely little factual knowledge” about the job market and labor force, Rutgers found.
This is the divide between the better-off people and the working class. If you look at just the statistics, the economy is doing decently, though not great;3 if you pay attention to what people perceive, what they feel in their bones, you’ll see an economy which is not very good at all. While there are plenty of articles telling us that the middle classes have seen a drop in their real income, I haven’t seen many giving us good information on the working classes, I haven’t seen many giving us information on how people in small towns and rural areas are faring economically. Perhaps this is why the media still don’t understand the Donald Trump phenomenon, perhaps they can’t understand the people with whom he connects because they don’t know the people with whom he connects.
There are a lot of people out there who do not believe that they have recovered from the 2008-2009 recession, that they are still behind where they should be had it not occurred. When the next recession hits, and it will hit sometime soon, the people who will be hurt the worst are the people who are starting out from a weaker economic position than they out to have.
It’s going to be ugly. Recessions always are, of course, but the next one just might be uglier than the last one.
- The Bureau of Labor Statistics also produces the monthly employment reports. ↩
- CNNMoney reported that, “A lot of people are moving out of California because they can’t afford to live there anymore. For every home buyer coming into the state, there are three Californians selling and moving elsewhere, according to data analysis firm CoreLogic.” ↩
- We have also noted CNNMoney’s report that this has been the slowest growth economic recovery since World War II. Perhaps CNN has been giving us mixed messages all along, and might not be paying enough attention to the stories which are not so optimistic. ↩