Here it comes. It’s never a matter of if, but when. There have been 47 recessions since the founding of this country. The last one, the Great Recession, ended officially in June 2009 after 18 months. The recession before that was 6 years previously starting in 2001.
Time between recessions is usually 6 to 7 years. The longest time span is 10 years which was between 1991 and 2001. It has now been 9 years since the Great Recession. Is it time for the next one?
For many, the economy is showing powerful signs of a coming recession. There are rising oil prices. Stocks have been stuck since January. The talk of an escalating trade war by the Trump administration. But now the New York Times has reported a very important signal from the bond market. “The so-called yield curve is perilously close to predicting a recession — something it has done before with surprising accuracy — and it’s become a big topic on Wall Street.”
The yield curve is basically the difference between interest rates on short-term United States government bonds and long-term ones. The gap between 2-year and 10-year United States Treasury notes is roughly 0.34 percentage points. It was last at these levels in 2007 when the United States economy was heading into the Great Recession.
Every recession of the past 60 years has been preceded by this inverted yield curve, according to research from the San Francisco Fed. They state that the curve inversions have “correctly signaled all nine recessions since 1955″.
I know, you might point out that unemployment is almost at a 20 year low and the GDP is growing. But the question is, with the recent corporate tax cut, should it actually be growing faster?
An important caveat to the predictive power of the yield curve is that it can’t predict exactly when a recession will begin. In the past, it has been in as little as six months or it could take two years.
When will the next recession come? My bet is 2019 when the results of the mid term elections are known. In the meantime, here is what you can do to prepare your small business for the next one.
What do you predict?
