What Happens When the Good Times End?

With unemployment at a near-50-year low, it’s hard to believe that recession fears are rising — but they are. In recent months, articles like “Companies Need to Prepare for the Next Downturn” and “You Never Know When a Recession Will Sneak Up on You” have appeared. Economic forecasters surveyed by the Wall Street Journal in May said they thought there was a 23% chance of a recession in the next 12 months, up from 15% a year ago. That means recession is unlikely in the next year, but worries persist even so.

Why have recession fears increased? It’s not because of bad labor-market news. Today unemployment is lower, wage growth is higher and job growth is just about as strong as it was a year ago. But the economy faces real risks. Here’s what those are — and what this means for employers and job seekers.

Four risks facing the economy

First is that today’s growth is unlikely to last forever. Unemployment at 3.6% is more than half a point below where the Federal Reserve thinks it will settle eventually, and job growth is much faster than what’s needed to keep up with the growth of the working-age population.

Second are political risks to growth, like a trade war with other countries or reduced immigration. Third, global shocks — like Brexit — could reverberate far beyond the borders of Europe and impact the U.S. also.

And fourth, long-term drags on growth like an aging population and slowing productivity mean that the good times aren’t as good as they used to be.

What will the next downturn look like?

When the next downturn comes, what might it look like? The past offers lessons. The five times that unemployment peaked in the past 50 years — 2009, 2003, 1992, 1982 and 1975 — paint a mixed picture. Each slump was different. However, even though economists still debate the causes of these recessions, there’s some agreement about what triggered each.

Subprime mortgages and a broader financial crisis were the story in 2009, with Sunbelt metros like Las Vegas and Phoenix, as well as Detroit, hardest hit.

But 2003 was a dot-com bust, centered in the expensive coastal metros of San Jose, Boston and San Francisco. The year 1992 was different still, with the savings and loan crisis and defense cutbacks — and Southern California had the biggest job losses.

The 1982 downturn was brought on by the energy crisis and high interest rates, and the Rust Belt fared worst. Nationally, unemployment rose even higher than it had during the Great Recession in 2009.

And the 1975 slump, aggravated by an oil shock and price controls, was worst in Detroit, Charlotte and Miami.

How people, places and industries fare in recessions

The past 50 years might look like a game of recession roulette, with different industry sectors and places at the heart of each downturn. But, in fact, there are patterns to which people, sectors and places tend to fare worse or survive better in recessions.

People who are disadvantaged in the labor market to begin with tend to do even worse in recessions. Those who are less educated and racial and ethnic minorities see Source link