Ed Hyman: The Next Recession Is Five To Six Years Away
February 29, 2016
by Jeffrey Briskin
Welcome to our latest issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring Point72 Asset Management losing about 10% in January, Millennium Management on a hiring spree, and hedge fund industry's assets under management swell to nearly Read More
The U.S. economy is showing signs of weakness, but the next recession is probably five to six years away, according to Ed Hyman, the chairman of Evercore ISI, a global economic research and investment banking advisory firm.
In a presentation at the 2016 MIT Sloan Investment Conference on February 26, Hyman said that the odds of a recession occurring within the next year or so are about 10%. Yet, he doubts that the stock market will rally again unless the Fed restarts quantitative easing.
Hyman heads the economic research team at Evercore and has been rated the #1 economist on Wall Street for the past 35 years by the Institutional Investor poll of investors.
We last wrote about Hyman five years ago, when he correctly forecast a bull market for U.S. equities, although he was over-optimistic about the prospects for economic growth. He predicted the U.S. economy would grow at 5.5% in 2011 and 2012, about twice the actual growth.
A longer, more protracted economic cycle
Hyman bases his prediction on historical analysis that shows that recessions usually happen around five years after the Fed’s stance on interest rates changes from easing to tightening. Normally, the Fed begins tightening two to three years after a recovery begins. But the depth and longevity of the Great Recession and the slow momentum of the current 65-month recovery kept the Fed from raising interest rates until December of 2015.
Hyman’s cautiously optimistic outlook is aided by surveys and interviews he and Evercore conduct with more than 300 corporate CFOs. When he speaks with clients in various locations across the U.S., most of them report that their markets are doing well. He is particularly encouraged by surveys of Evercore’s employment agency clients that indicate demand for their services is strong and wage pressure is increasing.
He is also encouraged by the gradual rebound in the segments of the housing industry. “Historically, new housing starts over the past 35 years have averaged around 1.5 million per month. After falling to 300,000 during the Great Recession, they’ve come back to around a million per month, which is encouraging,” he said.
However, he still sees areas of concern. Falling energy prices have driven oil rig counts from a peak of 2,000 during the height of the shale oil boom to less than 500 in February 2016. The negative impact of industry-related layoffs and cuts in capital expenditures are offsetting the positive influence of lower gas prices. Yet, in balance, Hyman believes that lower energy prices will help delay, rather than hasten, the timeframe for the next recession.
Next Recession Probability