Economy

Is a Global Recession Inevitable?

Since taking office, President Donald Trump has regularly touted the success of the U.S. economy, citing a rising stock market, job growth, and low unemployment figures as examples. 

But a global economic slowdown has many economists warning of a possible recession, as poor and middle-class families stand to take the brunt of the economic pain should one come to pass. 

“If you went back a year and a half, everyone was talking about this synchronized global upswing in the economy,” Harvard Economist Karen Dynan told The Globe Post

“Nearly every economy in the world was seeing positive GDP growth. Some economies like the United States were really seeing booms and in 2018 we saw growth of close to 3 percent.”

Economic Slowdown

A lot has changed since then according to Dynan, who said there have been recent economic slowdowns in places like China as well as other countries in Latin America. 

The United States economy is also showing signs of slowing down after the Commerce Department reported GDP growth of only 1.9 percent in the third quarter of 2019. 

The Q3 figures come after an also disappointing second quarter of 2 percent growth, making the Trump Administration’s projections of 3.2 percent growth in 2019 all but impossible.

“Now we’re seeing growth slowing in lots of different countries,” Dynan said. 

“There are some economies that are just slowing for ongoing structural reasons like China … You have some countries, particularly in Latin America, that are just troubled politically …and then there are cases like the United States where … we have seen a fairly pronounced slowing in GDP growth from last year.”

The Trade War and the Yield Curve

Meanwhile, the U.S. trade war with China is fostering uncertainty among investors as well as businesses in the agriculture, automotive, and technology industries. 

“The nature of the U.S. China trade dynamic is just leading to a lot of uncertainty,” Dynan said. 

“Businesses just don’t know at this point how their global supply chains are going to be affected by this trade battle.”

Another major indicator economists are looking to as they try to predict when a recession could happen is the yield curve. The curve measures interest rates for both long term and short term treasury interest rates. The yield curve inverted earlier this year, an event that has preceded the past seven recessions.

“When the yield curve inverts, the recession signal is that long term interest rates … fall below short term interest rates,” Julia Coronado, the founder of  Macro Policy Perspectives and a former Federal Reserve economist, told The Globe Post

“It’s not necessarily that it causes a recession, but it’s an indication that investors are expecting that the Fed is going to have to cut rates, and usually the Fed cuts rates because we’re going through a recession.”

Coronado explained the Fed’s decision earlier this week to cut interest rates for the third time this year is an effort to get out ahead of and prevent a recession. 

“The Fed cut rates three times this year,” Coronado said. “We have seen mortgage rates decline. We have seen housing turn around a bit as a result. So it’s trying to stimulate certain parts of the economy to offset what’s becoming a drag from the trade war and a slowing global economy.”

How Can the Average Family Prepare for Recession?

The most common and acutely felt impacts of recessions on poor and middle-class families is job loss. According to both Coronado and Dynan, the best way for families to prepare for a recession is to try to have a few months of expenses on hand as a financial buffer should someone in the family lose their job. 

“That’s easier for some families than others,” Dynan said.

“We know from the data that a lot of families don’t have very much savings at all and I suspect in many cases it’s not the result of them not wanting to save. It’s just hard … They just haven’t seen a lot of income and wage growth for decades now.”

Economist Paul Isley had a different recommendation for Americans who could lose their jobs in the event of a recession and suggested it could be more difficult coming out of a recession than going into one. 

“Since 1991, recessions have had what we call long tails,” Isely told The Globe Post. “In the old days…everybody would lose their job and then everybody would get their job back. Now, people lose their job, but not everybody gets their job back and it takes some people much, much longer to get back.”

According to Isely, the most vulnerable workers will be those whose jobs are in danger of being replaced by artificial intelligence and automation which he said could include certain bookkeeping jobs and banking services.

You need to be looking five years down the road,” Isely said. “Is the job I’m doing going to exist? And if it’s not, now is the time to retrain.”

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