Ben Bernanke got a big laugh from economists in Atlanta on Jan. 4. A few minutes after Janet Yellen said, “I don’t think expansions just die of old age,” he replied, “I like to say they get murdered.”
All right, not that funny. But the nerdy repartee between the past two Federal Reserve chairs at the annual meeting of the American Economic Association reveals how central bankers think about recessions—and says something about how likely it is that the U.S. will tip into one over the next year.
The open secret of the economics profession is that its practitioners don’t have a theory for why expansions die. Or rather they have several theories, each of which contradicts the others and none of which is fully supported by the data. Because economists don’t know why recessions start, they can’t predict when one will start.
The likelihood is that the U.S. economic expansion that began in June 2009 will reach its 10th birthday this summer and roll right on, becoming the longest U.S. period of uninterrupted growth since at least 1854. Economists surveyed by Bloomberg see only a 20% probability of recession over the coming 12 months. Their median projection for gross domestic product growth is 2.6% in 2019, slowing to 1.9% in 2020. Nothing on the horizon shouts “recession.”
Then again, without a good theory of the business cycle, no one really knows. What we do know is that economic growth is fueled by the confidence of consumers, businesses, and investors. Lately, that confidence has been sagging. A spike in fear that the expansion will die—either of old age or from murder most foul—could become a self-fulfilling prophecy. “Things can turn quickly because so much of this is animal spirits,” Kristin Forbes, an economist at Massachusetts Institute of Technology’s Sloan School of Management, said at the economics conference in Atlanta.
It seems like a strange time for anyone to worry about a recession. On Jan. 4 the Bureau of Labor Statistics reportedthat the U.S. economy created 312,000 jobs in December, half again as much as the monthly average over the past five years. Ordinarily such a burst of hiring would drive down the unemployment rate, which has stayed below 4% for the longest period since the Soaring Sixties. The only reason it actually rose a bit—two ticks, to 3.9%—is that the hot pace of hiring drew more people into the labor force. That’s exactly what you want to see: discouraged workers, premature retirees, and people out on disability all giving the job market another try. “This is a much better, more optimistic picture right now,” White House economic adviser Larry Kudlow said in a Bloomberg Television interview…
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