What Will Cause the Next Recession?

NEW YORK (MainStreet) — It’s been a year and a half since the recession officially ended, and many signs point to a slow but continued recovery, at least for the near future.

Consumers started spending again at the end of 2010, with sectors like the retail and auto industry experiencing particularly strong growth after a long period of struggle. Indeed, businesses and firms around the country have reported higher demand for their services and expect to hire more workers in the first quarter of this year.

Even the housing market, which has been in shambles since 2007, has shown promise, as the number of foreclosed homes dropped to the lowest amount in two years and the rate of mortgage delinquencies continues to decline.

But for every sign that the economy is improving, there is another hinting that the tough times are not over yet.

Sure, businesses are making money again and could stand to hire again after a long period of layoffs, but for months now many of these companies have sat on record amounts of cash and chosen not to bring on new employees. As a result, the unemployment level remains frozen near 10% and some predict it may get even higher this year.  And yes, the housing market may be sorting itself out, but by some estimates, there are still 10 million or more homes in danger of foreclosure, which means we still may not have seen the worst of the housing crash.

With all these competing signals, it can be difficult to decipher whether the economy is on its way out of a recession or on its way back into one. So we surveyed a dozen leading economists to get their opinions on what, if anything, could lead to another recession down the road, whether in six months or six years. Here is what the experts are watching out for.

The Housing Market

If previous recessions are any indication, the housing market is the most likely to sink the economy.

“Historically, the main risk to the economy has come from the housing sector. With two exceptions, it’s led us into all the recessions we’ve ever had,” said Edward E. Leamer, director of the Anderson Forecast at the University of California, Los Angeles, which provides quarterly predictions about the direction of the U.S. economy.

Leamer personally believes that any threat posed by the housing market is still a long way off, but several other economists believe the threat is more immediate.

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