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Sunday, June 25, 2017

Goldman on the Next Recession

by Calculated Risk on 6/25/2017 12:13:00 PM

A few brief excerpts from a note by Goldman Sachs economists: The Next Recession: Lessons from History

With the current expansion already the third longest in US history, investors have begun to look ahead to the next recession. ... we find that many pre-WW2 recessions originated in the financial sector, many post-WW2 recessions were caused by oil shocks and monetary policy tightening, and sentiment-driven swings in borrowing and investment led to recessions in both eras. ...

Some common contributors to past recessions look less worrisome today. ... the dominant cause of postwar US recessions—rapid rate hikes in response to high inflation, often boosted by oil shocks—is less threatening today due to the anchoring of inflation expectations and the rise of shale.
[Our model] now estimates a 1/4 chance of recession over the next two years, somewhat below the unconditional probability over two years of 1/3 since 1980.
CR note: Some day there will be another recession, but I don't see signs of a recession in the next year or more.