Yes, another recession will come

Two things struck me at the recent Northern Colorado Economic Forecast, presented by BizWest:

• Uniform praise for the economy overall, with strong growth in banking, health care, real estate, etc. Strength is apparent both at the national and local levels, as federal tax reform further fuels the U.S. economy.

• Prediction of a recession, beginning as early as the third quarter of 2019. That came from Matt Vance, director of research and analysis with CBRE. Brian Lewandowski, associate director of the Business Research Division of the University of Colorado Boulder’s Leeds School of Business, said that CU has a recession built into its model for 2020, but has not taken the step of outright predicting a recession.

SPONSORED CONTENT

Federal District Court Rules Corporate Transparency Act Unconstitutional . . . But Most Small Businesses Must Still Comply

Lyons Gaddis Real Estate and Business Attorney Cameron Grant shares important details of the Corporate Transparency Act (CTA).

But predictions of an economic downturn — even a year and a half away — stand to reason. Economies are cyclical, after all, and the U.S. economy has been chugging along. GDP growth reached 2.3 percent in 2017, compared with 1.5 percent in 2016. (Fourth-quarter 2017 growth stood at 2.6 percent.) The stock market has reached record highs. Housing costs are soaring along the Front Range. Unemployment stands at records lows.

But things can change quickly. As my colleague Neil Westergaard, editor in chief of the Denver Business Journal, noted recently, economic forecasts in 2007 were almost uniformly positive. “The consensus view from most public and private economists was full speed ahead for the U.S. economy, despite a weak European market and flagging numbers in many other places in the world,” Westergaard wrote in a Jan. 5 column.

What followed was the Great Recession, the worst economic downturn since the Great Depression.

With that in mind, it’s somewhat refreshing to hear economists even hint at a downturn. How helpful would that have been in 2006, when the Weld County housing crash prompted national media to question what was happening?

How helpful would it have been in 2007, when national forecasts remained overwhelmingly positive? Or 2008, when the bottom truly fell out of the national economy?

Even traditional models that can help predict a recession might not be as accurate as they used to be. Economist Daniel Carter, a contributor to Seeking Alpha, has written several gloomy columns for the website, www.seekingalpha.com, predicting a downturn. He noted in one article that the yield curve of U.S. treasuries, which typically flattens at the end of an economic cycle, might not do so in the future, as low interest rates have negated the effectiveness of the yield curve as a predictor.

And he followed up in December with an article titled, “It’s Beginning to Look a Lot Like 1937,” referring to another serious downturn in the U.S. economy.

So, when many pundits spout nothing but optimism, acting as if a downturn is impossible, when daily reports of record-breaking stock-market performance spawn feelings of investment invulnerability, when it seems to make sense to borrow money from your 401(k) to take that Caribbean cruise that you so richly deserve, it might be worthwhile to log onto Google and search for a few archives from 2006, 2007 or 2008.

Christopher Wood can be reached at 303-630-1942, 970-232-3133 or cwood@bizwest.com.