Patterns and Politics

Once is an accident. Twice is a coincidence. Three times or more is a pattern. -- Pug Mahoney

   All of the economic downturns of the past century began during a Republican administration.
   Moreover, each recession was preceded by an inversion in the financial yield curve, when short-term returns were higher than long-term bond yields.
   Now, the nation has seen an inverted curve since last May, and a Republican occupies the White House.
   Taken together, this means the American economy is likely to go into recession soon.
   When? That's impossible to say, but if history is any guide, look for it to happen within the coming year -- in the middle of the presidential election campaign.
   Meanwhile, the good news is that employment rose in November and the jobless rate was relatively steady at 3.5 percent, according to the Bureau of Labor Statistics.
   Economists define recession as two consecutive fiscal quarters of negative economic growth. That is, a dip below zero in the growth rate of Gross Domestic Product (GDP), the total value of all goods and services produced in the nation.
  The U.S. economy has been enjoying the longest expansion in its history, as recovery from the last downturn began in the first year of the Obama administration, some ten years ago.
   GDP has risen in every fiscal quarter since then, though the growth rate has faded recently, and is now at about 2 percent, right in the target range eyed by the Federal Reserve, which is charged with monitoring the economy.
   Specifically, GDP was 3 percent in the first three months of this year, 2.0 percent in the second quarter, and 2.1 percent in the quarter ended September. The first estimate for the fourth quarter of 2019 will be published January 30, and that would be the first official evidence of a possible problem.
   Even so, it would take several more months to accurately quantify the extent of a downturn, and an additional three months to meet the standard definition of a recession.
   That means that if GDP growth goes negative in the fourth quarter of 2019, it would require another dip in the first three months of 2020 to qualify as a recession. We won't know for sure until nearly summer that the U.S. economy has declined after a decade of growth.
   That news would come just when political campaigning goes into high gear, as primary elections and national conventions are held to choose presidential candidates for next November.
   Historically, here's the pattern of Republican presidents and the onset of economic downturns:
   Herbert Hoover, 1929; Dwight D. Eisenhower, 1953; Richard Nixon, 1970; Gerald Ford, 1975; Ronald Reagan, 1982; George H.W. Bush, 1990; and George W. Bush, 2001 and 2008.
   Data from the Federal Reserve Bank of New York shows a correlation of negative yield curve to every recession since 1960, and using data through July 2019, anticipates the probability of a downturn in the coming year to be more than 30 percent.
   Sharpen all your pencils, journalists. You've got a busy year ahead.