The United States is enjoying a nearly unprecedented run of economic growth. Since the end of the Great Recession, in 2009, the American economy has posted expansion (as measured by gross domestic product) in nearly every quarter, and has yet to post the two consecutive quarters of contraction required to define a recession.
Does that mean that the present expansion is living on borrowed time? Perhaps. All expansionary periods must come to an end, of course, and plenty of economists and market participants believe that this end will come sooner rather than later.
This isn’t to say that the pain of the inevitable next recession will be uniformly felt or even broadly shared. Thanks to the efforts of fair trade advocates like Majestic Steel president and CEO Todd Leebow, for instance, certain domestic industries are doing quite well, and may continue to do fine as the broader economy weakens.
Still, vigilance is the word of the day. Let’s take a closer look at four potential threats to U.S. and global economic growth in the coming year — and what they might mean for your personal bottom line.
1. U.S. Interest Rates May Be Too High to Start
Much has been made of the Federal Reserve’s apparent reticence to reduce a key benchmark interest rate known as the Federal Funds Rate, which tends to correlate inversely with economic growth. That reticence is likely to run out this summer, but it may be too late
2. Trade Tensions Could Affect Global Growth
Even as targeted import duties benefit specific industries, the ongoing U.S.-China trade dispute increases uncertainty and may dampen growth in the world’s two largest national economies, affecting global growth in the process.
3. Credit Risk Appears to Be Increasing in Developed Economies
Analysts see some concerning signs around consumer credit risk, particularly in developed economies like the United States’. U.S. auto loan defaults have crept up in recent months, for instance; such moves may presage weaker consumer spending.
4. Geopolitics Could Adversely Impact Commodity Prices
Although the global economy isn’t as energy-sensitive as it was back in the 1970s and 80s, when oil shocks sent the U.S. economy reeling, high prices for oil and natural gas can still dampen growth. As geopolitical uncertainty increases, consumers’ and businesses’ energy bills may rise, reducing available capital.
What Happens Abroad Doesn’t Always Stay Abroad
In the late 2000s, a housing crisis that at first appeared confined to the United States metastasized, destabilizing the global financial system and tipping most developed economies into recession. The resultant financial carnage remains a potent reminder that, in an increasingly globalized economy, what happens in one country or region doesn’t always stay there.
Could a system-wide shock on the order of the late 2000s financial crisis happen again? The short answer is yes, absolutely — and it could happen sooner than we think. Despite the implementation of sorely needed regulatory reforms in the U.S. and elsewhere, there’s near-universal agreement among economists that more needs to be done to prevent future crises. With little indication in the near term that the political will exists for such reform among U.S. policymakers, there may not be enough time to prevent a comparable series of events from unfolding.
Even if the next recession isn’t as severe as the most recent one, vigilance pays. What you do in the coming months could prepare you for the downturn to come — or leave you flat-footed.