Will the Next Recession Happen in 2019? Here's Why Everyone's So Worried
Let's not get ahead of ourselves.
This week got people really worried about the next recession. The scary talk came in hot after the holiday: By Monday the Wall Street Journal had declared the housing boom was over, citing eight straight months of falling home sales on an annual basis.
That was only the start of onslaught. On Tuesday, General Motors announced 15,000 layoffs and five factory closures. On Wednesday, it was Great Britain’s turn: With the Bank of England’s chief saying it was “preparing for the worst” and expecting the economy to shrink by as much as eight percent next year, thanks to Brexit. By later that day, an economist at the prestigious Brookings Institute had begun worrying whether unemployment benefits were generous enough to get people through another downturn.
Make no mistake folks, there’s trouble a brewin. Fortunately there’s plenty of time to do something about it.
What’s this about a recession?
I know I write all the time about how, at least as far as your money goes, you shouldn’t react too strongly to scary headlines. But we also seem to have this pesky boom and bust problem with our economy, enough so that recessions tend to come along on the reg.
In my lifetime, they’ve happened pretty much once every 10 years. There was one in 1990 and 1991, in response to the Gulf War, and another one about a decade later in the early 2000s, right after 9/11. The worst one in recent memory was obviously the great recession, which took off when the housing market crashed in 2007 and didn’t stop until the spring of 2009. With the ten year anniversary of the recovery around the corner next June, it’s natural that people are starting to wonder when the next recession will happen. Robert Scott, a senior economist at the Economic Policy Institute focused on manufacturing tells Inverse that while we’re not quite there yet, there are some troubling signs. The economy, he says, is showing signs of being on a “sugar high” thanks to the tax cut we passed last year, which dramatically raised the deficit and may have increased the likelihood of a crash.
“The last time we saw a big increase of the deficit like this was in the first decade of the 2000s,” he explains. “And at that time we lost 2.5 million in manufacturing jobs. That could be the trigger that pushes the economy into recession. It may not be enough alone but it could.”
Of course, some have taken the GM closures to be an example of exactly the kind of manufacturing job loss that Scott fears. GM’s no dummy, executing a massive layoff in the middle of a strong economy must be a sign that they’re taking some chips off the table. Winter is coming, so to speak, it’s time to get ready. But Scott says that goes a step too far, GM may be a huge, important company but it’s still just one company, in an industry that’s sort of in the midst of an existential crisis.
“The auto industry in the U.S. has been collapsing for at least 30 years,” he says. “In most of the world, people drive small, fuel efficient cars. The U.S. went exactly the opposite direction: we subsidized the construction of gigantic trucks and SUVs, and that’s what people drive, and they’re a lot more profitable to make than small cars.”
GM’s plan for dealing with that problem involves focusing on a much, much, smaller number of better cars, eventually they plan to get to just five automotive “architectures.” The idea seems to be that this narrower focus will let them continue making the gas guzzlers people want now while also figuring out what cars we’ll want to drive in the future too. But fewer kinds of cars means fewer jobs for GM workers, hence the news. But it may not just be the automakers who need to worry: Yahoo! News reported on Thursday weekly jobless claims, perhaps one of the most reliable indicators of a coming recession, ticked up to a sixth month high. Here’s how you can get ready.
Emergency Fund It Up
The main reason to care about when there’s a recession is that when there’s less money in the economy, it tends to mean fewer jobs. During the great recession, the unemployment rate nearly doubled, from around 5 percent in Jan. 2008 to 9.9 percent in December 2009. There’s little reason to think the next recession will be that bad, thankfully. The eight month recession in 2001 sent the unemployment rate from around 4.3 percent to 5.6 percent. To be ready when a recession hits, most industry advice recommends having about six months expenses saved up. That’s probably a lot to ask of most people. The average job hunt, thankfully, usually takes about six weeks but it varies quite a bit by industry and experience. Think about how long you usually spend looking for a job; build in some padding; and start saving toward that number.
Start Studying Up (on Places to go Study)
In addition to trying to save extra money (which, if I’m being honest, I’d be encouraging you to do in a booming economy too) it’s a good time to start thinking about leveling up your skills. Lots of people tend to go back to school when there’s a recession, which makes sense. When the job market sucks, the opportunity cost of going back to school and learning new skills goes way down. But shady actors like the for-profit college industry tend to take advantage of this, and target their offerings to anxious or out-of-work people.
While you’re in a position to be more strategic, think on what skills you’d like to acquire and what would be the cheapest way to acquire them. If you’ve got a good job, maybe there’s a way to convince your employer to pay for some extra skills. And, to end on a bit of a happier note, they may very well be convinced to pay for it. That’s because at this very moment, things are still going pretty well, as a fund manager friend just texted me.
“Overall things look pretty good” the friend, who I let speak off the record because he isn’t supposed to talk to press, said. “Consumer confidence is high, [we’re] still well in expansion territory, earnings growth has been solid, oil prices are low, which is very good for the US consumer.”
In other words, there’s still lots of opportunity out there. But it may be time to start being a little smarter about what you do with it.
This has been an adapted version of Strategy, a weekly newsletter filled with the most pertinent financial, career, and lifestyle advice you’ll need to live your best life. I’m James Dennin, innovation editor at Inverse. If you’ve got money or career questions you’d like to see answered here, email me at firstname.lastname@example.org — and pass on Strategy with this link!