Outlook 2017: Get ready for a recession

My outlook for 2017 and beyond is that the U.S. economy will likely see another recession. Yes, the economic picture currently looks wonderful. The Dow and S&P 500 are at record levels. Unemployment is well below 5 percent of the labor force. Inflation is still tame. The U.S. dollar is strong.

The U.S. economy has grown dramatically over the long-run. GDP has increased by one-third since the beginning of the 21st century, even after adjusting for inflation.

However, capitalist economies do not simply grow steadily larger. Instead, their long-term growth is periodically punctured by downturns. Continue reading

How do we know if the world is in a global recession?

Since the start of this year, stock markets around the world have fallen as panicked investors have begun believing that the world is slipping into economic malaise.  This fear has also driven down prices of commodities like oil and copper and impelled some central banks, like Japan’s, to make dramatic efforts to boost growth. The concerns are being magnified by memories of the worldwide recession of 2008 and 2009, when many countries experienced widespread joblessness, business bankruptcies and homelessness.

While national and international leaders cannot prevent worldwide economic downturns, a coordinated response among them can mitigate some of the impact. But it’s hard to rally government resources to this cause without the ability to determine whether we are actually in a recession or not.

So how do we know when the world is in a recession and such a response is needed? Continue reading

Is Japan Really in a Recession?

Yesterday and today the business news highlighted a story that Japan was now in a recession.  The media defines a recession as any time a country has two consecutive quarters of falling GDP.    The graph from the Wall Street Journal, seen at the bottom of this post, confirms that Japan’s GDP has shrunk over the last six months.  Based on the extensive negative press coverage Japan’s Prime Minister Shinzo Abe has called for early elections.  An important question needs to be asked.  Is Japan really in a recession?  There are three reasons why Japan’s economy is much healthier that the media portrays.   These three reasons strongly suggest to me that Japan is not in recession right now. Continue reading