Are micro recessions the new normal?

A series of mini booms and busts may be to thank for keeping the historic U.S. expansion going—and going.

Since the end of the financial crisis of 2007 to 2008, investors have fixated on forecasting the next economic recession. There have been a few scares, but a true economic recession has not materialized in the United States. Why not? It may be that a series of “micro recessions” have kept investor, business and consumer enthusiasm in check but not done enough damage to bring down the economy or markets as a whole. Over the next few years, we think it is more likely we will see a few more of these micro recessions than it is we will see the end of the cycle.  

Micro recessions, which we define as a substantial decline in employment and output of a given industry, have defined the contours of the U.S. economy over the last 10 years. The catalysts of these micro recessions fall into three broad categories: monetary and fiscal policy, global industrial cycle and technological disruption. 


Past causes of micro recessions and the likelihood of them causing the next

Graphic showing the micro recessions that have occurred from 2008 to present day, categorized as: Monetary/fiscal policy shock; global growth and industrial cycle; and technological disruption. The legend highlights that the most likely source of future

Source: J.P. Morgan Private Bank. Data as of February 4, 2020.


Domestic fiscal and monetary policy is not restrictive now, and the global industrial cycle appears to be at a local trough. That leaves technological disruption as the most likely cause of the next micro recession.

Could technological disruption cause a macro economic recession—a substantial decline in overall output and employment? We doubt it. When innovations occur, they tend to offset the losses elsewhere in the economy. Online shopping platforms, for example, operate with a superior cost structure compared to physical market places. As such, they are a deflationary force, which in turn causes consumers to purchase more goods. Even though traditional retail jobs are lost, new jobs are created in industries like distribution services, warehousing and logistics. For the retail sector as a whole, activity keeps expanding, but the winners and losers have changed.


Retail: All shopping isn’t distributed equally

Chart comparing the stock price of three categories: overall retail sector, traditional retail and from 2012 to 2020. The chart shows that the Amazon stock price has far exceeded the other two categories from 2015 onward.

Source: Bloomberg, J.P. Morgan Private Bank Economics. Data as of January 31, 2020.
Past performance is not a reliable indicator of future results.


Possible candidates for the next micro recession are the energy and transportation sectors as clean energy and electric/autonomous driving gain traction. Another is the financial sector, which is going through a number of technological transitions that are ultimately beneficial for the broader economy (in the form of reduced costs and increased access for financial products and services), but could result in job losses.

Let’s assume our hypothesis correctly explains the current expansion: repeated micro recessions allowing for an extended macro expansion. Could this pattern go on for another, say, five years? How about 10?

There’s no law in economics that says it can’t. While the U.S. expansion is aged compared to its own history, it is not especially long in an international context. Australia is currently in a 28-year expansion, which had its own share of micro wobbles along the way. Canada has a 23-year expansion in its history.


Relative to other countries, the U.S. expansion doesn’t seem extraordinary

Chart comparing the length of multiple U.S. economic expansion, showing the date each started and how long they each lasted—from 1919 to present. The chart highlights that the current expansion is the longest that any expansion has been in U.S. history.

Source: FactSet, Standard and Poor’s. Data is as of January 30, 2020.


What if we are wrong?

What might cause a macro economic recession? The most proximate cause could be the presidential election in the United States. The Progressive candidates have advocated remaking American capitalism. If those proposals become policy, it might disrupt the current expansion. However, even if a progressive were to become president, it is unlikely a radical policy would win enough votes in Congress to become law.

Another possible spark for a macro economic recession could be a return of wage pressures and price inflation, which the Fed would have to step in to control. The Fed might overtighten and cause a significant downturn (which was the risk in 2018). However, this scenario seems unlikely in the near term, as inflation continues to be capped by secular forces such as demographics and technological disruption.

An alternative “overheating” scenario could be that low interest rates and easy money finally incentivize the kind of animal spirits that have largely been dormant since the global financial crisis. Exuberance builds excesses, which eventually unwind. However, although asset valuations are certainly full, we see few signs of systemic exuberance at the moment.   

To us, it seems more likely that, during the next few years, imbalances will not emerge at the macro level because a series of micro booms and busts will keep the macro in check. A common refrain is that “expansions don’t die of old age.” Indeed, if micro recessions continue to keep the macro backdrop contained, the U.S. expansion could live to see a very old age.






This material is for information purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Please read all Important Information.


Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.


Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.


Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual or perceived economic or other incentive in its management of our clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client’s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client’s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account.

Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward looking views in order to meet the portfolio's investment objective.

As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

While our internally managed strategies generally align well with our forward-looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.

The Six Circles Funds are U.S.-registered mutual funds managed by J.P. Morgan and sub-advised by third parties. Although considered internally managed strategies, JPMC does not retain a fee for fund management or other fund services.


In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. JPMCB and JPMS are affiliated companies under the common control of JPM. Products not available in all states.

References to “J.P. Morgan” are to JPM, its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the brand name for the private banking business conducted by JPM. This material is intended for your personal use and should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission. If you have any questions or no longer wish to receive these communications, please contact your J.P. Morgan representative. 

© 2020 JPMorgan Chase & Co. All rights reserved.


Check the background of Our Firm and Investment Professionals on FINRA's BrokerCheck

To learn more about J. P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our Guide to Investment Services and Brokerage Products.

This website is for informational purposes only, and not an offer, recommendation or solicitation of any product, strategy service or transaction. Any views, strategies or products discussed on this site may not be appropriate or suitable for all individuals and are subject to risks. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor's own situation. 

This website provides information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). When JPMS acts as a broker-dealer, a client's relationship with us and our duties to the client will be different in some important ways than a client's relationship with us and our duties to the client when we are acting as an investment advisor. A client should carefully read the agreements and disclosures received (including our Form ADV disclosure brochure, if and when applicable) in connection with our provision of services for important information about the capacity in which we will be acting.

Equal Housing Opportunity logo

J.P. Morgan Chase Bank N.A., Member FDIC Not a commitment to lend. All extensions of credit are subject to credit approval 

“J.P. Morgan Securities” is a brand name for a wealth management business conducted by JPMorgan Chase & Co. (“JPMC”) and its subsidiaries worldwide. JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Please read additional Important Information in conjunction with these pages.