Zombified Economy: What Will the Next Recession Look Like?

-edited

The short answer is nothing like the last.

If you search for "next recession" numerous ideas pop up. Many believe there will not be a recession soon.

Condition Comparison

Conditions are radically different than in 2007 and 2000.

The Fed re-blew a housing price bubble but the number of jobs tied to construction, sales, CDOs, agents and even the impact on banks is a shell of what happened then.

Technology is bubbly, but not like 2000. This is how I see things.

  1. We will not have bank failures in the US.
  2. There will be major bank failures or bail-ins in Europe.
  3. Housing will not have a major role but will strengthen the recession.
  4. Millennials simply cannot afford houses so housing will not lead a Fed attempt at a recovery even if interest rates plunge.
  5. Low interest rates will keep zombie companies alive for a while longer .
  6. Proliferation of retail stores, Walmart, Target, everything requires minimum staffing levels no matter how poor sales become.
  7. Unemployment will not rise much like last time. Instead, expect to see hours cut.Also expect for many of those currently working two jobs to lose one of them.
  8. Retail sales will plunge with the reduction in work.
  9. The impact of the above is very weak profits but not massive labor disruption
  10. Stocks will get clobbered as earnings take a huge hit.
  11. Junk bonds also get clobbered on fears of rolling over debt.
  12. This malaise can potentially last for years.

Zombified Economy

Japan is in a state of zombification and Europe is on the verge.

The US may not and likely will not go through Japanese-like extremes just yet. However, the demography setup is poor, the student debt problem is a huge overhang, boomers unprepared for retirement is a huge overhang, and pensions are a huge overhang.

Democrats may win the next election and massively hike taxes. That will not help either.

Finally, the Fed only has room to cut by 240 basis points or so. Negative interest rates don't help as proven by the ECB and the Bank of Japan.

Mike "Mish" Shedlock

Comments
No. 1-25
KidHorn
KidHorn

Have we ever had a recession with the unemployment rate this low? Seems like layoffs and closings would have to proceed a recession.

RonJ
RonJ

"Negative interest rates don't help as proven by the ECB and the Bank of Japan."

Yet they still exist, despite not working.

Mark Sircus
Mark Sircus

Surprised you are so optimistic! If we do not have a complete crash, destruction of the entire financial system we are out of luck as a race, I am afraid, for we will catch hell from several directions, nuclear war comes to mind, G5 which promises untold horrors I am sure others can think of ways modern man is in suicide mode.

JonSellers
JonSellers

Historically, business recessions were caused by companies over-expanding and running out of available labor. In a global economy, it's hard to see that happening. I think it is possible to see a few months of slow or no growth, but I don't see an actual recession with mass unemployment unless someone wants one. Maybe the Fed decides too many Americans are employed and keeps jacking up interest rates. Or the ChinComs want to teach their local capitalists a lesson and tighten up credit standards. But it will be by choice.

Realist
Realist

There should not be a recession in the next few years, unless we experience some kind of black swan event (like Trump closing the border for a month, or expanding his trade wars). Having said that, I expect continued slow growth of around 2%/yr for a few more years. Then I expect only 1% growth for the next decade. This will be followed by no growth or even slight economic decline for a few more decades after that.

Inflation will remain around 2% for the next few years. After that I expect inflation to begin to accelerate back towards mid to high sjngle digits for the next several decades. Since growth will be slow or negative, we are in for quite a long period of stagflation beginning in a few years time. Living standards will drop for the vast majority of the populace.

The reason for this rather dire forecast is a combination of factors. One is existing high debt levels. This will act as a drag on growth for the foreseeable future. The second issue will be energy. Fossil fuel costs will increase significantly. The third big factor will be the costs of climate change; more crop losses and failures; more severe droughts, floods, and wildfires; coastal erosion and flooding; ocean acidification hitting fisheries;, more migration of people leaving areas that are no longer habitable. Please note; I’m not talking extinction and alarmism; just higher costs. These changes will creep up on us slowly over several decades. They will hardly be noticed by many and they will also be denied by many, even as they happen.