Recession? Correction? Neither?
LEHI, UT, March 27, 2019 —
As real estate developers, we are constantly scanning the headlines for signs of economic contractions, recessions, and overall market movement. Over the past year, economic sentiment is bracing for an impending recession.
Historically, recessions occur every 6-10 years. With the dot-com bubble in 2000, followed by the Great Recession in 2008, it seems that we are past due for a correction.
However, Christopher Thornberg of Beacon Economics begs to differ. In an interview with GlobeSt.com, he mentions the following:
"This year, the chance of a recession is zero. Next year, there is a small chance. Something could pop up over the year, but I have no idea what that would be. Every recession has a cause, and that cause has to be a large shock to the system. It has to be large; it has to be rapid; and it has to be sustained: a collapsing housing market; collapsing investment in the business sector; collapsing consumer spending... For anyone who thinks the economy is about to go into a recession, my question for them is, ‘why do you think that, and what is worrying you?’ I look through the range of indicators and study them on a regular basis, and not one of these things is flashing warning.”
With this in mind, lets take a look at some of the potential signs that Christopher is regularly monitoring:
1. Fed clamping down on lending
2. Interruption of Chinese Capital
3. Rising interest rates
4. Housing affordability
5. Corporate debt levels
Aside from these potential signs, Christopher also mentions the following as "pressure points" that may be worth further investigation with signs of a recession:
1. High-yield debt markets
2. Non-lending banking
Take a look at the full interview here, which dives into each of the above points.
GDP recognizes the risks of a potential recession, which is why there is a strong focus in only selecting projects that are recession resistant on all fronts. GDP takes their relationships with investors and lenders very seriously, and works to ensure that performance on commitments is always met.
All things considered, the irony is that recessions come when the majority isn't expecting it. With so much hype around an impending recessions, history may prove to surprise even the most keen economists.