via Sean Williams
Chances are that if you invested at any point during the Great Recession, you’re sitting pretty right now, assuming you’ve held onto your positions. The U.S. economy is in the middle of its second-longest economic expansion in history, going back 161 years. And since the market bottomed out in March 2009, investors have witnessed all three major stock indexes at least quadruple in value at one point. It’s been a truly unique ride – and chances are it’s going to come to an end sooner rather than later.
To be perfectly clear, trying to predict when recessions will occur is pure guesswork. Top market analysts have called for pullbacks in the market, unsuccessfully, in pretty much every year since the Great Recession ended. But the economic cycle doesn’t lie: recessions are inevitable. And in my estimation, we’re probably closer to the next recession than you realize.
How can I be so certain? Well, I can’t. Remember, I just noted there’s virtually no certainty when it comes to predicting when recessions will occur. There are, however, six warning signs that suggest a recession could be, in relative terms, around the corner.
1. The unemployment rate will struggle to push lower
Since the unemployment rate peaked at 10 percent in October 2009, it’s been on a pretty steady decline. As of May 2018, it hit 3.8 percent, which tied the lowest unemployment rate recorded since April 2000 and would have been a 39-year low had it ticked one-tenth of a percent lower. A low unemployment rate is usually a sign that the U.S. economy is in good shape.
The issue is this: It’s incredibly difficult to improve upon an unemployment rate of 4 percent. People changing jobs makes it difficult to generate enough job growth to continually push the unemployment rate lower than 4 percent. What’s more, a smaller pool of unemployed workers could make it difficult for companies to filled skilled positions. If employers can’t fill positions, then their production capacity becomes constrained.
Additionally, an environment in which unemployment rates are low puts the ball into the workers’ courts. If businesses are required to parcel out higher wages to lure in new workers and retain existing talent, it could result in a significant increase to inflation, which would be bad. I’ll be covering inflation in more detail in an upcoming point.