More Job Openings Than Unemployed Workers

Kicking The Can Down The Road

With the recent acceleration in economic growth, the new trend is analysts at the major investment banks pushing off their recession prognostications by a year or two. When the economy falters, it’s very easy to call for a recession because this cycle is about to be the longest since 1854. When the economy accelerates, economists see the writing on the wall and push off their recession predictions. They realize that it’s difficult for growth to go from above 3% to negative in a few months. We’re still over a year away from the late 2019 recession calls which were popular a few months ago, but economists don’t want to be caught bearish in 6 months with the economy currently doing well.

If you think the economy will fall into a recession in late 2019, it’s reasonable to start being more conservative soon. Stocks can peak over a year before a recession occurs such as in 2000. To be clear, I’m concerned about the timing of the recession, not how deep it will be. Figuring out how bad it will be is meaningless until we are in it. Would you not sell if stocks were only going to fall 25% in the next recession? No, if you could predict that bear market, you would try to avoid it.

No Recession Until 2021

In a previous article, I mentioned how many on Wall Street think the economic growth may have peaked in Q2 and now I’m discussing how analysts have pushed their forecasts for a recession further back. This is simply a reaction to the data. It’s possible to think growth will slow from 3.7% without expecting a recession. As you can see in the chart below, the economic growth in 2018 is expected to be above 2.75%. It’s expected to be below 2.75% in 2019; in 2020 the consensus is divided, but the most popular range is from 1.25% to 2.75%.

On Thursday, a prominent forecaster named Byron Wien claimed he was outside the mainstream because he expects a recession to not occur until 2021. I think this is simply a representation of someone getting ahead of the flood of analysts who quickly will be all changing their calls in the next few months. Watching forecasts is confusing because some analysts come up with a forecast based on current trends and simply say there’s outsized risk of a recession in a certain period. Therefore, they have two forecasts. I’m still expecting a recession in 2020, but I’m not making any trades based on this call because it’s too far in advance. In 2019 when the economy looks like it’s weakening and the curve has inverted, I’ll be looking to take risk out of my portfolio.

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