Lessons Learned From The Recent Recession Scare

Dec 13 12:12 2019 Print This Article

Earlier this year a number of economic analysts were convinced that a US recession was imminent. So far, however, the economy has continued to expand, albeit at a slowing pace as the year unfolded. The breathless warnings have, once again, come to naught — par for the course in recent years. The culprit, as usual: misguided business-cycle analytics.

That doesn’t mean that an all-clear signal has arrived as the year winds to a close. But reviewing the past warnings, and what most analysts got wrong, can tell us a lot about how to model recession risk to minimize the noise and maximize the signal.

The first step is to understand what not to do. Perhaps the biggest mistake is to focus on a lone indicator. For example, an economist back in January predicted that 2019 was likely to suffer the start of a new downturn. The catalyst? “We’ve got more than 80 percent chance of recession just based on the fact the Fed is tightening policy,” he warned on CNBC.

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About Article Author

The Capital Spectator

CapitalSpectator.com is a finance/investment/economics blog that’s edited by James Picerno. The site’s focus is macroeconomics, the business cycle and portfolio strategy (with an emphasis on asset allocation and related analytics). In late-2009, the Eastern Economics Journal named Picerno as one of the nation’s “top economics bloggers”. Picerno is the author of Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor (Bloomberg Press, 2010) and Nowcasting The Business Cycle: A Practical Guide For Spotting Business Cycle Peaks (Beta Publishing, 2014). His articles on finance and economics have appeared in a variety of publications and news outlets over the years, including The Atlantic, Financial Advisor, BankRate.com, HorsesMouth.com, and Bloomberg Briefs: Economics. He also pens a daily economics column for the Saxo Group’s TradingFloor.com web site. Picerno has been writing about investing and macroeconomics since the early 1990s at Bloomberg, Dow Jones and other media groups before becoming an independent writer/analyst in 2008. He also offers consulting services on asset allocation and portfolio strategy, the US business cycle, and related data analytics in R and Excel.

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