As the Dow Jones was erasing its earlier 2018 downward trend in December, most business headlines predicted that a recession is just around the corner.
Five months into 2019, the Dow has mostly rebounded close to its 2018 heights, but fears about recessions abound. The Federal Reserve appears to be stricter with rate hikes, the housing market seems to be softening, and consumer spending is down.
For many economists, the question is not whether a recession is in our future, but when—and how bad will it be?
A closely-watched survey released in February by the National Association for Business Economics (NABE) found that 77% of the surveyed economists predicted that the United States would fall into a recession by 2021.
NABE surveyed about 300 top economists at high-level institutions in the early months of 2019. Of those surveyed, 10% said a recession would strike in 2019, 42% thought it would hit in 2020, and another 25% predicted 2021.
“Three-fourths of the NABE Policy Survey panelists expect an economic recession by the end of 2021,” NABE President Kevin Swift, who is also the chief economist at the American Chemistry Council, said in a statement.
In general, though, those surveyed said that they approved of how the Fed was responding to economic trends.
“Business economists continue to approve of current monetary policy,” Swift added. “Nearly three-quarters of panelists believe that the Federal Reserve’s policy is ‘about right,’ roughly the same percentage as in the August survey. A majority of panelists continues to believe the Fed should maintain its current inflation target of 2%.”
Importantly, it appears that these economists are closely watching the national deficit. For the fiscal year 2018, the deficit represented 3.85% of gross domestic product.
“A majority of panelists also indicates they would be worried about a budget deficit in the US that equaled up to 4% of gross domestic product,” said Swift.
Other economists seem to believe the fear is overblown. A CNBC survey released at the end of April found that 21% believed that a recession would occur by the middle of 2020.
Many in this survey wanted the Fed to raise interest rates this year.
“The Fed has clearly pivoted from being autopilot hawkish to ‘The Year of Living Patiently,’” Art Hogan, chief market strategist at National Securities, said in the survey. “I think one of the biggest surprises for 2019 may well be stabilizing economic growth globally and a fourth-quarter rate hike by the US Federal Reserve.”
Some economists are saying that even if a recession comes, it would not be as bad as the 2008 contraction.
“At present, I don’t see any major economic or financial bubbles that are just begging to be pricked,” economist A. Gary Shilling wrote in Bloomberg. “The only possibilities are excess debt among US nonfinancial corporations and the heavy borrowing in dollars by emerging-market economies in the face of a rising greenback.”
Recessions are part of the business cycle, so it is likely that the economy will take a hit within the next few years. The big question, though, is if the upcoming recession will strike as hard as the economy boomed last year.