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Signs suggest we’re headed toward recession in the next year

The incomes of typical Americans rose in 2015 by 5.2 percent, the first significant boost to middle-class pay since the end of the Great Recession, the Census Bureau reported on Tuesday morning.

The 10-year economic expansion that began in March 2009 became the longest economic expansion in American history last month. With unemployment at 3.6% and the stock market hovering at near record highs, it is not surprising that the president constantly tweets about the state of the economy. However, all is not well, and there are ominous signs that point to a recession within the next year.

When President Trump was inaugurated, the Dow Jones Industrial Average stood at 20,000. Today, it is at 27,000 — a 35% increase. While that is an impressive run, it was just a continuation of the increase that started in 2009, when the Dow was at 7,000. It had nearly tripled by the time President Trump took office in January 2017. The stock market is now flat, with the Dow at the same price today as it was 18 months ago in January 2018.

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(Scott Stantis)

The president’s insistence on slapping tariffs on various products in an effort to close the nation’s trade deficits are self-inflicted wounds to the U.S. economy with no discernible strategy behind them. The trade deficits remain, but the Consumer Price Index (CPI) shows that inflation is edging up by 2% per year. With the implementation of new tariffs and the ongoing trade wars, GDP is likely to slow even further, and consumer prices are likely to rise at a faster pace over the next year. In addition, retaliatory tariffs instituted by other countries are hurting U.S. exports. American farmers have been particularly hard hit by tariffs and are losing markets around the world, particularly in China. The situation for farmers has become so dire that the president had to provide a $12 billion bailout in 2018 and another $16 billion this year.

The combined $28 billion bailout for farmers just added to the rising U.S. budget deficit After years of significantly shrinking deficits, the budget deficit for 2018 ballooned to $779 billion. It is on track to exceed $1 trillion this year — the first time this has happened since 2012. Of course, this was all easily predictable as a result of the Trump tax cuts combined with his significant increase in federal spending. The scary thing is that if we are running an annual $1 trillion budget deficit with a great economy, just think about how bad it will be when the next recession hits.

(Drew Sheneman)

The reality is that President Trump came into office with a booming stock market, significant job creation and solid GDP growth. On all of these economic indicators, it appears we are now headed in the wrong direction. The stock market is flat, GDP growth is expected to fall next year, the U.S. budget deficit is rising, and job growth is slowing. According to U.S. Bureau of Labor Statistics figures, the U.S. economy created 700,000 fewer jobs in the first 30 months of the Trump presidency than were created during the last 30 months of the Obama presidency.

The signs of economic trouble are becoming clearer. Beyond all of the above, there are two technical indicators that should alarm all Americans. First, as a result of the Trump tax cuts, income inequality is rising rapidly. The top 0.1% of Americans is now earning almost 12% of the nation’s total income. The last time this happened was right before the Great Recession. The only other time it approached 12% was before the Great Depression. Second, the yield curve on Treasury bonds has become inverted. The spread between the 10-year Treasury bond and the 3-month Treasury bond is referred to as the yield curve. In a healthy economy, the 10-year bond should have a higher interest rate than the 3-month bond. The yield curve is now inverted with the 3-month Treasury bond carrying a higher interest rate. The last three times this happened, the U.S. economy went into recession in 2008, 2001 and 1990.

President Trump’s booming economy - Original Credit: Tribune Content Agency - Original Source: South Florida Sun Sentinel
President Trump’s booming economy - Original Credit: Tribune Content Agency - Original Source: South Florida Sun Sentinel (Dana Summers / Courtesy)

This is now fully the Trump economy, and unfortunately, the president’s economic policies have put us on a precarious economic path. Without structural changes in tax policies, trade policies and spending that run counter to the president’s preferences and economic views, we will be in recession within the next 12 months. Be prepared.

Robert P. Singh is a professor of management at Morgan State University; his email is rsingh@morgan.edu.

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