In this note, I shall highlight my personal experience with predicting current downturn of 2020 and thoughts about the next upturn. When is the next economic downturn coming? I had asked this question to myself in September 2018. And I published my thoughts in AZIndia Times, September 2018 edition, as follows:

“Does this question interest you? Perhaps, to everyone. After all, it affects everyone. It affects households, businesses, government, even rest of the world. In economic downturn, jobs are lost, incomes decline, spending is cut, consumption is cut, homes are foreclosed, and most unfortunately even some lives are lost due to extreme stress and completely unwarranted reactions like committing suicide. On the flip side, it offers opportunity to pick up assets on cents on dollar and build wealth.

The truth of the matter is that economic downturns and upturns are concomitant of economic systems built on private ownership and free enterprise. Does it mean community ownership and highly regulated economies can avoid economic downturns? The answer is a big No. The reason is that we live in a highly connected, globalized, economically interdependent and contagious world. There is no economy today, island to itself.

The memories of global financial crisis and great recession of 2007-09 are still fresh in the mind of our generation. But that does not mean we didn’t have recessions prior to that or shall not have after that. The graph, below, showing dates of U.S. recessions over 1970- 2018, published by Federal Reserve Bank of St Louis, is very educative.

Dates of US Recession


It shows downturns and upturns come and go. Those are cyclical, but not with any certain regularity. (Committing suicide due to an economic event that is cyclical is, therefore, certainly unwarranted.)

The lack of regularity of downturns (and upturns) makes its prediction challenging and exciting too. By looking at the graph, above, I believe, anyone can safely say that the next downturn is due for coming. When? Well, that is difficult to say, with clock precision. If history repeats itself, even if on average, it may be by 2019-2020.

It would, however, be beneficial to watch three indicators to pick up early signals:

  • The yield curve- it’s flattening.
  • Private debt as a share of GDP accelerating to a level of 6% higher than its trend over the previous decade.
  • Private credit growing faster than the economy for three to five years. And it would be equally advisable to keep some ready cash to pick up assets on cents on dollar then.”

Coronavirus and Economic Downturn

I had no idea of coronavirus then in 2018. I, however, have great faith in economic cycles. What goes up comes down and what comes down, goes up. It is almost like, in Hindu philosophy, life cycle (birth-death-birth; reincarnation) and the earth cycle (emergence from underwater – going underwater – re-emergence from underwater), or, the seasonal cycle, that we experience each year. While life cycles and earth cycles are too long to observe in one’s life, seasons are too short and recurrent. The economic cycles have been, on average, observed over 7 – 10 years.

When will the next upturn come?

Today, I am asking myself when will the next upturn come? Again, no crystal ball. But economic history and numbers can be useful guide. First, please don’t go by stock market. It may go up by escalator and come down by elevator. Next, it is a hotchpotch of huge variety. You have retail investors and institutional investors. Their investment analysis capability are miles apart. Their risk-taking capacity and incentives are nowhere near. The information asymmetry is phenomenal in this market. Some people just see stock prices. Others see prices and volumes. Yet others see orders in the pipeline. Stock market used to be called the barometer of economic health of the economy. I don’t think so, anymore. There is a big chasm between Wall Street and Main Street. Wall Street values easy and cheap money. The United States Government and the Federal Reserve have thrown so much so quickly; there is no reason for the stock market to collapse, while economy is nose- diving. The main street on the other hand, more than easy and cheap money, values market stability and certainty. If the consumption is collapsing, Main Street can’t thrive. And in U.S., consumption constitute about 2/3 of its Gross Domestic Product (GDP).

Is USA in recession?

Not technically. Recession is officially announced when the GDP growth is negative for two consecutive quarters. So far, we have data for the first quarter, 2020. The second quarter data is yet to come after the end of June 2020. The consensus is that second quarter will be much worse than the first quarter. Reason is simple. First quarter was not hit by coronavirus lockdown for the full quarter. So, the damage is less than what we may see at the end of full second quarter. The official announcement in July, 2020 would most likely adversely affect the sentiments in the Main Street, and then in due course in the Wall Street also. Will it become global? Possibly. All those who feed America have had lesser exports.

Three Serious Issues

We foresee three serious issues:

  1. The Government debt of United States on May 4, 2020 has reached $24.9 trillion. This amounts to broadly 116% of its GDP. How much more fiscal support would the Congress be able to provide?
  2. Federal Reserve has already hit Federal Funds Rate (the rate at which banks borrow from each other on overnight basis) near Zero. Negative interest rates, after 2007-09 great recession, wherever tried, have not been very successful.
  3. Real gross domestic product (GDP) decreased 4.8 percent in the first quarter of 2020, according to the “advance” estimate released by the U.S. Bureau of Economic Analysis (BEA). The “advance” estimate released by the BEA for the 4th quarter of 2008, during the great recession, was off by nearly 4 percentage points. Therefore, the current estimate for the first quarter of 2020 doesn’t lend much confidence in the market.

With the U.S. Presidential election due in the 4th quarter, 2020, this year would be a year of uncertainty which businesses don’t like. Let’s also not forget that the recovery that had been witnessed after 2007-09 great recession was much seen there after the Jobs and Tax Cut Act, 2017. The zero federal funds rates of 2008-14, a.k.a. quantitative easing or accommodating monetary policy had not done much wonders. Another Jobs and Tax Cut Act in 2020? No way. Sorry, the next upturn in the Main Street would be delayed and slow beyond 2020.

Dr. Sat Parashar, PhD is a Professor and a Financial Advisor. He may be reached at

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