Is a US Recession on the Horizon?

While small businesses and federal workers continue to deal with issues stemming from the recent US government shutdown, a recent survey suggests a new source of frustration might be on the horizon.

The dreaded “R” word: recession.

A survey by The Wall Street Journal indicates that the odds of a recession have jumped to the highest level in seven years.

According to economists surveyed by the Journal, there is a 25% chance of a recession happening in 2019. That’s up from a prediction of 13% last year and is the highest percentage since October 2011.

And the outlook for 2020 doesn’t fare any better. According to the survey, 56.6% of economists are projecting an economic downturn will coincide with the presidential election year.

What’s the cause? While those polled by the Journal couldn’t pinpoint one specific reason for the increased risk of a recession, the big-ticket issues cited included trade tensions with China, rising interest rates, and “a sharp stock market selloff last year.”

Consequence of Government Shutdown

While there’s no overall consensus on what sort of influence the recent shutdown has had on the country’s economic growth, The Washington Post has reported that for every week or two the government is closed, a tenth of a percent is cut from the US’ GDP growth.

Though a government shutdown is certainly not a new occurrence, the length of the recent one has taken the US into unchartered territory.

“In the short term, government shutdowns don’t last very long. They typically have not left much of a mark on the economy. At the aggregate level, the economy generally does not reflect much damage from a shutdown,” said Jerome Powell, chair of the Federal Reserve, during a discussion at The Economic Club of Washington on Jan. 10. “A longer shutdown is something we haven’t had. If we have an extended shutdown, then I do think that would show up in the data pretty clearly.”

Since the shutdown ended, President Donald Trump has stated he thinks there is a “less than 50–50” chance that talks will work out over the next three weeks. The President added that he would potentially close the government once again if he doesn’t receive a “fair deal” for his border wall proposal by February 15.

The potential for a second government shutdown brings a lot of uncertainty — for government workers, businesses, and the overall economy.

Small Business Indicators

The US economy might be doing well right now, but that’s no absolute protection against a recession. In fact, recessions often start when the economy is at its peak and has nowhere else to go but down.

Small businesses are typically among the first to see early signs of a recession. One key indicator is the National Federation of Independent Business’ (NFIB) Small Business Optimism Index.

With the last recession, the optimism index hit a high in the third quarter of 2004, at a time when the US economy was growing faster than it is now, before falling and bottoming out in early 2009.

Last year, the Small Business Optimism Index reached a record high in August and has been steadily falling ever since.

Considering that half of all Americans are either employed by or own a small business, and that small firms account for around half of the country’s GDP, should the optimism index continue to decline it could spell trouble for the overall economic outlook.

Of course, these projections and indicators don’t mean that a recession will definitely take place this year or even the next. But what these projections do indicate is that there is a lot of uncertainty about the current economic forecast. That means it would be wise for businesses to prepare now for a worst-case scenario should the economy take a downturn.