It seems to be a constant question in the back of everyone’s mind: Will there be another recession coming our way? The simple answer, according to analysis from Quartz [1], is “of course.”
However, exactly when this recession will occur is nearly impossible to predict.
The good news is that no telltale signs of an upcoming economic apocalypse are currently rearing their ugly heads, but the bad news is that it doesn’t necessarily mean that one won’t emerge to shake us to the core once more. For this reason, the best thing we can do is simply try the best to prepare ourselves by being aware of what causes a recession and being ready as we can be once those signs begin to appear.
Just as in most of life, if something isn’t broken (or battered), it won’t need “fixing.” Such is the same with economies. If an economy is doing well, the length of time will not matter for how long of duration the waters will flow smoothly. Instead, a recession will only be caused when something happens on those waters that rock the surface with a strong jolt, causing tidal-like waves and an entire oceanic upheaval. Once that happens, the boats must readjust their course quickly or face hitting the rocks.
Such real-world examples of such jolting outward circumstances that led to economic recession (in this case, tidal waves of turmoil) were the sudden skyrocketing oil prices that occurred on the scene in the 70s, the infamous falling of house prices in 2008, and the Federal Reserve’s surprise (and devastating) raising of interest rates in both the 1930s and early 1980s.
That being said, similar signs of possible water-shaking catalysts appear to be on the horizon, among which include an undeniable political uncertainty pervading news headlines daily. From November’s election outcomes to the ever-present possibility of a trade war, and even the growing economic instability in China—and who can forget Brexit lurking in the shadows — shaky markets might be just around the corner.
Warning signs include an influx in the market for leveraged loans that are made to private companies with weak credit ratings and high debt, causing lenders to become less particular about loan recipients, thus making the overall economy vulnerable. “Zombie Firms” are also a concern, as these businesses that should be going out of business stay open due to cheap loans.
The debate as to whether a recession will occur has been constant in 2019, but the likelihood of a recession in the near future is on the decline and is likely to drop further as the year ends, according to the latest BuildFax Housing Health Report [2]. The chance of a recession stands at about 42%, according to BuildFax.
BuildFax’s recession probability estimate started the year at 29% and then rose sharply to nearly 50% by September. Now it is on the decline. According to BuildFax, the time to “raise red flags” is when the likelihood reaches about 60%.