
Ask HN: Are we heading for another recession? - maktattengil
What are your thoughts on the economic development in the near future?
======
dragontamer
The most plausible theory I've seen floated is that the US Midwest is likely
already in a recession. US Manufacturing index weakens AGAIN, which means the
midwest isn't making as much stuff as it used to.
[https://www.instituteforsupplymanagement.org/ismreport/mfgro...](https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm?SSO=1)

So a local recession is likely already happening. The question is whether or
not this spreads to be a full US-scale recession.

I do believe that the technology sector is in the end-stages of a bubble, but
whether or not that causes a drop in GDP is another question. The WeWork IPO-
failure, as well as Peloton IPO drop, has shown that "tech" companies are not
as valuable as VCs thought they were. (WeWork isn't $40 Billion as Softbank
expected but is instead ~$10 Billion).

So now what? Well remember: 2008 was a "Great Recession", and 2001 was a
recession but mainly isolated to the tech-sector. A recession like `91 (~8%
unemployment) is probably what people should be thinking about from history.

There's probably no chance of another 2008-like "Great Recession". But the US
economic cycle cannot boom forever, and we've been booming for nearly 11 years
now. Some kind of recession is inevitable.

~~~
isoskeles
> The WeWork IPO-failure, as well as Peloton IPO drop, has shown that "tech"
> companies are not as valuable as VCs thought they were.

Would you suppose that the failure of their IPOs points more at the lack of a
bubble? I mean to suggest that in a bubble / "irrational exuberance", these
IPOs would be more likely to succeed, and after, the value of their public
stock would go up dramatically because investors were being overly optimistic
and speculative about these companies. Instead investors determined they were
overvalued prior to even entering the public market. To me, the failures
indicate the lack of a bubble.

Although I wonder about the _bubble-iness_ of the gig economy. I've had
increasingly bad experiences with it (more on the side of a customer), and I
assume workers have worse experiences. I 'feel' like something's got to give
at some point, where you'll see over some short period of time, a ton of
people just begin to opt out from the "gig" economy on both sides (as
customers and workers), aside from the fact that many workers depend on it.

~~~
dragontamer
> I mean to suggest that in a bubble / "irrational exuberance"

Earlier this year, Uber IPO'd and raised $8.1 Billion in public money. It then
_immediately_ lost $5.236 Billion in Q2. [https://investor.uber.com/news-
events/news/press-release-det...](https://investor.uber.com/news-
events/news/press-release-details2019/Uber-Reports-Second-
Quarter-2019-Results/default.aspx)

Public investors are weary about giving more money to Silicon Valley startups
because the public has already lost so much money this year on other bets.

Yes, "irrational exuberance" is going away today. But there are many, many
companies that the public has bought into this year and last year, at HUGE
valuations. But this only confirms what I believe to be the deflating of the
new-tech bubble.

Uber is laying off staff and cutting costs. Future investors and future IPOs
are "poisoned" due to how poorly Uber has done. Anyone else planning on IPOing
in this environment is going is going to have more trouble.

The public is going to increase their scrutiny of future tech IPOs. If Uber
did that poorly, who else may be a trap?

~~~
toomuchtodo
> If Uber did that poorly, who else may be a trap?

Who isn’t profitable or has razor thin margins? Who is heavily levered up with
debt? That’s how you find who will be naked when the ocean goes out.

------
tjpaudio
This is a really complicated question. Some things to consider:

1) Capitalism needs ever-increasing consumption to sustain itself. Imagine a
metric: amount of stuff consumed by a person on average. If that number
doesn't increase every year, you get a recession. Keep an eye on consumer
spending and M1 (the velocity of money). (btw, this is why the long term view
of capitalism is grim, it ultimately cannot be sustained. but who knows maybe
we learn how to harvest metals out of meteors and we all have our own private
jets in 100 years. that would be great for capitalism)

2) Most recessions are triggered by a catalyst. The most recent one was caused
by financial instruments that over-leveraged real-estate. It won't be that
this time, but there are others at play now. Student debt defaults could rise
if unemployment dips, causing another lending crunch, but likely only debt
holders would be hit hard (localized recession). I am also keeping my eye on
the overnight repo market - banks are holding less cash and it's causing some
interesting new problems at the fed, but unclear how that could ripple to the
economy. Certainly the trade war could push up the cost of goods as well and
cause consumer spending to dip. A lot of economists have been searching for a
catalyst scenario but there doesn't seem to be one.

3) Slower growth could be the new-norm. There is a large chance financial
assets won't see the kind of appreciation over our lifetime that our parents
saw. It is possible that 1970's era stagflation could return.

4) Liquidity trap, maybe? The aforementioned fiasco that unfolded this past
week in the repo market would signal a potential risk.

Are we headed to a recession? Hard to say.

~~~
chrisco255
On point 1) you're incorrect. Services make up nearly 80% of the U.S. economy.
Our economic growth in recent decades has not been due to an increase of
stuff.

[https://2016.trade.gov/publications/ita-
newsletter/1010/serv...](https://2016.trade.gov/publications/ita-
newsletter/1010/services-sector-how-best-to-measure-it.asp)

I work for a multi-billion dollar company and we just sell ones and zeroes.

~~~
tjpaudio
I see you took my use of the word stuff quite literally. Services are stuff
too, and get included in M1 and consumer spending. I'm not wrong.

~~~
chrisco255
You mentioned harvesting metals out of meteors so I took you at face value on
that word. Point is that it's more about efficient use of labor and capital.
And we still have a long way to go in realms of automation technology, energy
tech, virtual reality, finance, biotech, medicine, space tech and countless
products and services that will continue to grow the economy for decades if
not centuries to come. That being said, a recession will happen at some point.
Difficult to speculate as to when, my guess is that if we are, it won't be a
deep one.

M1 money supply is not typically used as a measure of economic growth. Money
supply can increase while the economy is tanking (see Venezuela). Real gdp or
other similar figures are typically used.

~~~
tjpaudio
M1 is for measuring velocity, not growth. Velocity of money tends to better
model the health of an economy than does GDP.

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Blakestr
I still haven't figured out how the elimination of redundant jobs will be
rectified by companies trying to sell products/services. If your customers
have no money (or credit), then you have no more customers.

~~~
dragontamer
Yes. That's why a recession spirals from a little bit of unemployment to a lot
more unemployment. The cycle feeds on itself.

Eventually, companies stabilize themselves, or maybe the US Government steps
in for hiring / temp work. If the US Government steps in every time however,
that creates "moral hazard", so its not something that policy makers like to
rely upon.

~~~
mateo411
Moral Hazard applies when the US Government bails out companies. If you are
running a company you can take a lot of risks if you know the US Government
will bail you out. The US Government can intervene by providing Works Projects
or tax relief, but that doesn't create Moral Hazard

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randomsearch
UK has had a quarter of negative growth. Hard to imagine Brexit is going to
boost that. So, yes, recession here almost certain.

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WaltPurvis
Of course. Economic expansions don't last forever and the US has been
expanding for 10+ years now, the longest expansion in our nation's history, so
it's fair to say we're overdue for a recession.

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sammyo
Yes but ALL estimates are bunk. Whoever can predict business cycles keeps it
more secret than the NSA inner sanctum.

