How Soon Should We Expect the Next Recession?

December 04, 2015

What has become known as the Great Recession officially came to an end in June 2009. Since then, GDP has expanded to new real highs, we are approaching full employment, and the U.S. dollar is the strongest it has been in the past decade. Though various issues remain within the economy, overall things seem to be going well.

The question on many people’s minds is how long can this last? Currently, we are 78 months out from the trough of the recession. Of the recessions since WWII, on average the period from the end of one recession to the start of the next lasts 58 months, suggesting we may be due. However, the last three recovery/expansion phases lasted longer than this and during the 1990s this period lasted 120 months leading up to the Tech Bubble.

Additionally, recessions do not occur simply with the passage of time; generally, there has to be a catalyst for the drop. Potential current areas of concern include slower wage growth, lower productivity, and the Fed tightening monetary policy.  However, the worst shocks to the economy are often unexpected; very few people predicted the housing crash. At this point though, there don’t seem to be any major red flags. The IMF’s most recent World Economic Outlook predicted only a 16% chance of the U.S. entering a recession through the first half of 2016. Also, with the last recession the worst since the Great Depression, it is plausible that the next crisis could be delayed as a result of people exhibiting more caution as it relates to spending and speculation. Ultimately, it is impossible to accurately predict when a recession will occur, so while the U.S. could enter a recession at anytime, we may still have several more years of expansion ahead of us.