Is 2016 Headed for another Recession?
March 30th, 2016The stock markets plummeted during the first two weeks of 2016, oil prices are down sharply, and at the beginning of 2016, China's stock market had fallen 40 percent since 2014. All of these factors have caused people to wonder if we’re about to head into another recession.
Luckily, many of the issues that made a recession seem likely a few months ago are less concerning now. Despite this, these are still signs a recession might happen in the next year or two.
Here are a few of the warning signs to be aware of, as well as why they might not necessarily indicate a recession is imminent:
China's economy
China's gross domestic product (GDP) is almost as large as the United States. If China's economy is in trouble, it is possible the rest of the world will be affected and fall into a recession as a result.
Some analysts counteract this by pointing out that the stock market is merely a reflection of how the economy is doing, not the actual economy itself. Others predict that China's economy will recover soon.
In fact, an article on CNN Money notes that China said their economy is still growing by 6.5 to 7 percent. Although that’s slower than China's economy has grown in the past, a recession requires negative GDP growth.
Low oil prices
Oil prices have been historically low these past few years. Some thought lower gas prices would give Americans the opportunity to spend more money on other products. However, there hasn’t been a big increase in consumer spending.
One good sign of a possible turnaround? Oil prices have recently increased from $27 to $40 a barrel. Whether prices continue to increase is yet to be seen.
U.S. stock market
The drastic fall of the U.S. stock market in January caused many to worry—and with good reason. But, at the time of writing, the Dow is up about 1.7 percent for the year.
And while the stock market has been questionable lately, most economists don't believe a recession is likely to happen soon. A Wall Street Journal survey from March 2016 showed that economists believe there is, on average, a 20 percent chance a recession will happen in the next 12 months.
That's not to say a recession can't happen. Economists haven't always been the best at predicting whether or not a recession will occur.
Are there signs the economy isn't headed towards a recession?
One big reason people believe a recession isn't imminent is the job market. Unemployment rates are at 4.9 percent, and in February 2016, 242,000 jobs were added. According to The Washington Post, consumer's confidence in the job market has also been on the rise. Plus, studies show more people are out looking for jobs.
Nevertheless, wages have not shown much of an increase. A lack of growth in salaries is one indication of a weak economy.
Another indicator of economic strength is company earnings. Companies are struggling, with corporate profits before taxes falling 11.5 percent according to the Department of Commerce.
In fact, according to CNN Money, out of all the signs pointing to a possible recession, this is one of the biggest ones Americans should be concerned about.
