The economic expansion that began in mid-2009 and already ranks as the second-longest in American history most likely will end in 2020 as the Federal Reserve raises interest rates to cool off an overheating economy, according to forecasters surveyed by The Wall Street Journal.
Some 59% of private-sector economists surveyed in recent days said the expansion was most likely to end in 2020. An additional 22% selected 2021, and smaller camps predicted the next recession would arrive next year, in 2022 or at some unspecified later date.
“The current economic expansion is getting long in the tooth by historical standards, and more late-cycle signs are emerging,” said Scott Anderson, chief economist at Bank of the West, who was among those predicting a 2020 recession.
As for the most likely primary cause of the next downturn, 62% selected an overheating economy leading to Fed tightening. Other options picked by at least 5% of economists surveyed were a financial crisis, the bursting of an asset bubble, a fiscal crisis or disruptions to international trade.
Recessions are notoriously difficult to predict, and sometimes are tricky to recognize even after they start. The recession that began in December 2007 wasn’t officially proclaimed by the National Bureau of Economic Research’s recession-dating committee until a year had gone by. Forecasters saw the chances of a recession rise back in 2011 and in 2016; both turned out to be false alarms.
“Recessions occur because of unforeseen shocks, so by definition there is no meaningful answer,” said Deloitte economist Daniel Bachman, who declined to estimate either the timing or cause of the next downturn.
Still, the predictions in this month’s Journal survey offer insight into the current consensus among professional forecasters: A recession isn’t imminent, but the expansion won’t last forever—and the next downturn might arrive in the thick of the 2020 presidential campaign.
“Any year from 2019 onward is in play,” said Lou Crandall, chief economist at Wrightson ICAP.
The longest expansion tracked by the NBER dating panel, going back to 1854, was the information-technology-fueled 1990s boom that lasted 10 full years. May marks the 107th month of the current expansion, surpassing the 106-month expansion of the 1960s, and forecasters have become increasingly confident the current expansion will set a longevity record by extending into the second half of 2019.
Indeed, in the near term, forecasters think the U.S. economy is on solid footing.
On average, economists predicted gross domestic product will expand 2.9% in the fourth quarter of 2018 compared with a year earlier, up from 2.6% growth in 2017. The unemployment rate, which fell to 3.9% in April, was expected to slide further to 3.7% by the end of this year and 3.6% by mid-2019. The average risk of a recession in the next 12 months was pegged at 15%.
Forecasters do see risks looming, with many mentioning mounting tensions over U.S. trade policy. Some 60% of economists saw greater risk that growth would undershoot expectations than overshoot over the next year.