We are Due for the Next Recession

8/17/2012 05:00:00 PM
This isn't a prognostication, nor the result of any economic forecast. It has nothing to do with current economic policies, or the trends in current indicators. Yet it is almost surely right.

Brad Plummer points out that recessions are much more frequent than most people--including policy makers--seem to think. Based on the NBER business cycle dates, a new recession begins on average once every four and a half years. Since the most recent recession began in December 2007, that means we should have been expecting the next one to start in June of this year. To be sure, recessions have become less and less frequent over time, with the longest stretch (peak to peak) between recessions being the eleven years from 1990 to 2001. Hence, even by the most optimistic prediction possible, we are bound to have a recession start sometime in the next 6 years.
Figure 1. Real GDP, with gray bars showing recessions.

Because the economy is already well below potential, I doubt that the recession will hit right away. But simply looking at Figure 1, it is almost certain that there will be another recession this decade. My guess is that when it hits, whether it is in two years or in six years, there will be a vocal segment calling it the "double dip recession," and blame whatever their favorite bogeyman for its much-anticipated coming. We've done this all before:
Figure 2. Real GDP showing the Great Depression and 1937 "double-dip" in gray.