A new study from MIT has found that there is a 70 percent chance of a recession occurring in the next six months, threatening to send a still-strong economy into a lurch just ahead of the 2020 presidential election.
As CNBC reported, the study from the MIT Sloan School of Management and State Street Associate used a scientific approach that was first developed to measure human skulls and applied it to study the market conditions in place just before a recession starts. The study looked at an index of four factors — industrial production, stock market returns, non-farm payroll, and the slope of the yield curve — and determined that there is more than likely an economic downturn on the near horizon.
“Looking at data back to 1916, the researchers said that the index was a reliable recession indicator since it rose leading up to every prior recession. They found that when the index topped 70%, the likelihood of a recession in the next six months rose to 70%,” the report noted.
“As of November 2019, the reading on the index was 76%.”
If the study’s predicted timeline is correct, it would mean the recession strikes just ahead of the 2020 presidential election, potentially creating difficulty for President Donald Trump in his reelection bid. Trump has touted the strong economy and low unemployment rate during his three years in office.
As the report noted, there are other indications that the economy is remaining strong. As the Washington Examiner noted, even one of Trump’s most vocal economic critics has come around to comment on the strength of the economy. Paul Krugman wrote in The New York Times that Trump’s 2016 election would bring on a “global recession,” but said –after the latest jobs report showing the unemployment rate at 3.6 percent — that the economy was strong.
There are still a number of other factors outside of Trump’s control and beyond the United States that could contribute to a recession, however. There has been speculation that the coronavirus spreading throughout China and across the globe could kick off a recession in the United States. Economist Lynn Reaser from Point Loma Nazarene University told the San Diego Tribune that if the virus were to spread widely in the U.S., it could impact travel, work, and shopping, creating the potential to “pummel” the economy as it has in the Chinese city of Wuhan. However, Reaser admitted that strong efforts to contain the spread of the virus could prevent any significant economic impacts.