Within the American economy, there have been many expansions and recessions throughout the years. Most economists agree that while you cannot predict when the next recession will occur, recessions are cyclical. There have been 33 cycles since 1854. The average recession last 17.5 months, and the average expansion lasts approximately 38.7 months. The longest expansion that has ever happened in America occurred between March of 1991 through March of 2001. This past record period of economic development and expansion last 120 months. Currently, America has been in a new record-breaking period of expansion which has lasted over 122 months.

What is next for the economy

It is widely agreed that the question is not a matter of if there will be another recession, but when there will be another recession. Analysts looking back at previous cycles and data point out that the American economy is long overdue for a recession. Not only is the American economy overdue for a recession, but there are other factors around the world that suggest global economic trouble is brewing.

Something is brewing

The most widely covered issue in the news that is currently impacting the global economy is the trade war between the United States and China. With each new release about an update of the ongoing trade war discussions, the market rallies or crashes depending on the news.

This past week, President Trump declared that he would hold off applying certain tariffs that were slated to start on September 1st. Immediately after the news came out, the stock market took off with the S&P 500 rising 1.5%.

While the stock market was bouncing quite well, the bond market didn’t come back nearly as fast.

Furthermore, this past Wednesday the bond market became worse with 10-year treasury bonds dropping to 1.59 percent. The 10-year bond even fell below the yield of the two-year bonds during certain points of the day. When the long-term yield on bonds falls below the short-term yield on bonds, this is known as an inverted yield curve.

An inverted yield curve in the past has been a warning sign that a recession is very near. It isn’t quite a guarantee, but it is a very strong signal. When investors saw the inverted yield curve, it prompted another drop in the stock market due to fears rising surrounding economic weakening. Usually, an inverted yield curve suggests that growth will be weaker, and inflation will be lower, followed by the Federal Reserve cutting interest rates.

Global Impact

The current trade war with China and the inverted yield curve are only a piece of what is going on around that world that is concerning from an economic standpoint. In Hong Kong, there are pro-democracy protests going on which are causing political unrest.

Meanwhile, India and Pakistan and in a heated conflict over Kashmir. Over in Europe, Britain is supposed to leave the European Union at the end of October which also has a great amount of uncertainty surrounding that issue.

On a larger scale, global central banks are starting to feel the pressure too as there isn’t much they can do to prevent the markets from tumbling further with an inverted yield curve. The overall European economy appears to be on the edge of a recession as well.

Conclusion

With many different factors going on around the world, it is an extremely important time to pay attention to new developments.

All of the different factors that are brewing together don’t necessarily guarantee a recession, but they should alarm investors, financial analysts, and business owners alike. The longer that the global issues continue, including the trade war, the more extended the impacts will be on the economy in America and across the world.

If President Trump can smooth over the trade war with China, that will only be one part of the puzzle that is fixed. We are in a time of unprecedented growth and expansion so it is important to pay attention to different factors that could signal the start of the next recession.

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