With the market swoon to start the year, many investors wondered if we were finally due for a sustained slowdown in the economy or even a recession. After all, since 1926, recessions have happened once every five years on average and it has been over six-and-a-half years since the last one ended.
Well, positive economic growth has continued and the capital markets have actually made a sharp recovery since mid-February. So, does this make a recession even likelier now as more time has passed?
Simply put, no. Recessions don’t have a due date based on the length of an economic expansion; instead, recessions are a function of higher inflation and the Federal Reserve consequently raising rates in response. In other words, an overheated economy, which very few people argue is the case right now.
Overall, we just don’t see the data that normally precede a recession or significant slowdown in economic activity. Recessions will happen – after all, they are a normal part of the business cycle. It’s just hard to see the onset of one anytime soon.
For more detail, check out a more in-depth study authored by Glenn D. Rudebusch at the Federal Reserve Bank of San Francisco here.