Ask HN: Are we heading for another recession?

https://news.ycombinator.com/item?id=21130079

by maktattengil • 7 years ago

18 26 7 years ago

news.ycombinator.com

What are your thoughts on the economic development in the near future?

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...

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• 7 years ago

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.

dragontamer3• 7 years ago

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...

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?

943_924• 7 years ago

Honestly nobody should be reading too deeply into the Wework thing. When you take away the name recognition, it' a shared office space that charges 3x it's competitors and is out of coffee creamer 2-3 days a week. Turns out it doesn't have rock solid business value after all. Whoop-dee-doo.

randomsearch• 7 years ago

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

tjpaudio4• 7 years ago

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.

chrisco2552• 7 years ago

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...

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

tjpaudio4• 7 years ago

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.

idoh2• 7 years ago

Regarding 1), what do you mean when you say that "capitalism needs ever-increasing consumption to sustain itself"? I don't think that this has been established.

I'm using the standard dictionary version of capitalism: "an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth."

mindcrime4• 7 years ago

I don't think that this has been established.

It hasn't. That's only true for a very specific aspect of capitalism, which is the speculation based, "buy equity and resell it later at a profit" model. But nothing specifically dictates that capitalism has to work this way. Investors can get a return on their investment through, for example, dividends. One could also argue that in a truly free market / capitalist environment, a LOT of the trappings of contemporary "capitalism" would not exist... corporations, for example, violate the connection between one's actions, and liability for the consequences of those actions. We rationalize that buy saying it encourages investment (and it probably does) and allows larger companies (it does)... but one can fairly ask if those ends justify allowing this violation of fundamental principles.

Blakestr• 7 years ago

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.

dragontamer3• 7 years ago

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• 7 years ago

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

sammyo• 7 years ago

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

WaltPurvis• 7 years ago

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.

Ask HN: Are we heading for another recession?

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