What's Next for
The Business Cycle
The business cycle is a critical and fundamental element of macroeconomics. It is the basis of many economic decisions, and the primary focus of articles or pieces in print media, radio, television, and the Internet. The business cycle is ubiquitous and will get millions of hits when searched on Google or other search engines. Even with all this interest and debate, it is still misunderstood. However, if you want to be successful in the personal and professional aspects of your financial goals, you need to understand the business cycle.
The question is not whether or not the business cycle exists, but rather, what is the length and periodicity of this cycle? Definitions and debates abound regarding the length of the business cycle and its predictability. As I’ve stated in this section, there is plenty of topical material regarding the business cycle. There are also plenty of models and predictions for where we are on the cycle and when the next recession will be.
The point is not to get caught up in the specifics and details of the current cycle, but to step back and look at the forest – not the trees – to get the big picture of what is going on and how that can help you with your decision making. You should also think about how the other cycles interact with each other, and account for the multiplier effect if the other cycles are in or out of phase with each other.
I had previously predicted a recession to occur by the end of 2018, because the end of the last recession was in 2009. Recessions typically occur about every nine years (on average); however, since the Tax Cuts and Jobs Act was enacted in late 2017, the economy has picked up steam. I now expect the recession to start by the middle of 2019 and no later than the end of 2019 (the Federal Reserve has predicted 2020), because the stock market decline has started, and the stock market usually leads the economy by around six months.
Since the cycle for Business is 9 years, and half of the cycle is 4.5 years, the bottom of the current cycle should have occurred in 2018 (2014 + 4.5 = 2018.5), but was delayed by the fiscal stimulus of the tax cut. The next peak of the Business cycle should occur around 2023 (2014 + 9 = 2023).
What’s Next for the Economy answers three questions that all business book buyers and individual investors ask themselves:
1) Is it safe to invest in the current stock market?
2) Should I buy or rent my next house?