Economists Believe a Recession Is Likely Within Next Four Years
October 13 2016 - 10:50AM
Dow Jones News
The U.S. must face one of two scenarios: Either the next
president will face a recession in office, or the U.S. will have
the longest economic expansion in its history.
Odds are that the recession is more likely. Economists in The
Wall Street Journal's latest monthly survey of economists put the
odds of the next downturn happening within the next four years at
nearly 60%.
That is not an assessment that the next U.S. president will
cause a downturn. Rather, it is a recognition that throughout its
history the American economy has never grown for more than a decade
without a recession. Over the course of the next four years,
something—whether exhaustion of the economy's cyclical momentum, a
policy mistake from the Federal Reserve or some outside shock—could
knock the economy off course.
"We do not think expansions die of 'old age' but there's more
probability that a shock will hit the U.S. economy further out in
the horizon," said Lewis Alexander, chief U.S. economist at
investment bank Nomura.
The current expansion began in June 2009, and has now continued
for 88 months, making it the fourth-longest period of growth in
records stretching to 1854.
Economists see a 20% chance of a recession within the next year,
and see those odds rising as the window gets longer. Asked to name
the specific risks, a plurality cited the possibility of a global
economic slowdown, which could be largely beyond the next
president's control.
To be clear, the length of an expansion bears little relation to
its strength. The U.S. economy has grown at a 2.1% annual pace
since 2009. That is the slowest growth of any expansion after World
War II. Many economists were once optimistic that growth would
accelerate, but now most forecast the economy will continue to grow
at this pace in coming years.
The survey underscores what is likely to be a key challenge for
the next president: Presidents are often granted leeway to enact
policies in response to recession. For example, President George W.
Bush passed tax cuts in 2001 and 2003, to stimulate the economy in
response to the recession during his first term in office. Shortly
after taking office amid a recession, President Barack Obama pushed
through legislation that was about one-third tax cuts and
two-thirds spending.
The economic policies of the next president, however, are
extraordinarily uncertain. By an 85% to 15% margin, respondents
rate the current election as more uncertain than typical, in part
due to the growing gap between voters in the two parties.
"Even after the election there will still remain a tremendous
amount of uncertainty," said Gregory Daco, chief U.S. economist of
Oxford Economics. "Policy-making may actually be more difficult in
a few month's time."
Hillary Clinton's economic policies generally resemble those of
previous Democratic candidates. But Mrs. Clinton would likely to
face a divided and discordant Congress that has been largely unable
or unwilling to move legislation in recent years.
Donald Trump has jettisoned the Republican Party's traditional
approach to economics. In a reflection of the size of this
departure from the past, not one member of the Council of Economic
Advisers for President Ronald Reagan, or either President Bush, has
endorsed his campaign.
Mr. Trump has pledged to reverse immigration, renegotiate trade
deals, and apply tariffs. On these issues, he differs from the
long-held views of many congressional Republicans, including
Speaker of the House Paul Ryan.
And observers are also left more uncertain than usual as the
public discussion has rarely revolved around fleshing out policies.
"The personal nature of the election has left little room for
serious policy discussion," said Douglas Duncan, chief economist of
Fannie Mae.
But over the next four years, few think a recession is
absolutely guaranteed. A quarter of economists place the odds below
50%.
It is precisely because the economy has grown slowly that some
think the recovery could last a long time. "Slow and steady leaves
plenty of fuel to keep going," said Russell Price, senior economist
for Ameriprise Financial.
The survey of 59 academic, business and financial economists was
conducted from Oct. 7 to Oct. 11.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
October 13, 2016 10:35 ET (14:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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