The United States is in the midst of the longest period without a recession in history, and there is no sign of the economy yielding in the near future, according to a financial expert.
Nicholas Juhle, vice president and director of research at Greenleaf Trust, said a recession, by definition, is when there are two consecutive quarters of economic contraction, and he believes there will not be a recession within the next 12 months. Recessions tend to last a year, and recent history has shown that it mostly occurs every five years, per Juhle.
The economy has been growing since the nation suffered its last recession that started in 2007 and ended in 2009. It was the longest recession since the Great Depression, which began in 1929 and ended in 1933.
“Right now, the economy is growing year over year with each passing quarter,” Juhle said. “The last recession was obviously severe, and the market response to that was harsher than typical. It was a period of very slow recovery. So, it took quite a while to rebuild momentum in the economy, and there were some policy changes. There were some things that were improved around monetary policies, things that we can do to promote a growing economy, and it has been in a recovery mode ever since.
“That doesn’t mean that there have not been any bumps in the road along the way. The last 10 years have not been voided of major headlines, major events, political elections, geopolitical turmoil, you name it. Through all that, the economy has continued to grow, and it is still growing today.”
Although the economy is strong, Juhle said there are some current events that are a risk to the stable economy. The current trade war with China, depending on who it favors in the end, can affect the economy.
“The economy is primarily driven by consumers,” he said. “Consumers are currently gainfully employed. We have a near 50-year low level of unemployment in the United States at 3.6%. People who want to work are working. They are earning good wages, and they are confidently spending, particularly as we go into the holiday season. That is the most important component of our economy, that healthy consumer, and we have that right now. The second-most important component is fixed investment spending by corporations. When corporations don’t know what the dynamics are going to be as they try to sell their products and services around the globe, they pause, and they stop making investment in infrastructure, in buildings and in inventory. So, right now with that open-ended U.S.-China negotiation, things are very unclear. We don’t know what imports will cost, we don’t know what exports will go for, we don’t know what kind of profits we can expect to retain on a unit of inventory and so businesses have paused a lot of their business investment spending.
“If that goes on long enough and the uncertainty from the trade war goes on long enough, you have to ask the question, ‘At what point does the pause in investment spending start to hit the consumers, at what point do businesses lay people off, at what point does unemployment start to rise again and at what point does the consumer stop spending?’ If that part of the economy stalls, then we have a real problem on our hands.”
Recessions prove to be an obstacle to not only businesses but also to Americans. During the last recession, homeowners struggled to pay off loans as some were laid off and didn’t have the resources available to pay for their mortgages, causing numerous foreclosures and others to short sell their homes.
Tom DeMeester, managing director for Greenleaf Trust Grand Rapids, said because recessions are evitable, he prepares his clients.
“When we are building a portfolio for our clients, we know full well over the next several decades of their lives, while they are investing, there will be recessionary periods and expansionary periods,” he said. “As long as we build a portfolio with that knowledge in mind, that kind of tells us that we shouldn’t have to make a significant adjustment, in terms of their risk profile, when one of those events occurs.”