The odd disappearance of the business cycle

And the futility of macro forecasts

I’m afraid that we’ve been sold a bill of goods. Pundits predicted that the 2022 Ukraine war supply shock would lead to a recession. Then we were told that the Fed’s policy of raising interest rates in 2023 would lead to recession. Then we were told that Trump’s April 2025 Liberation Day tariffs would lead to recession. The truth is that pundits have never, ever, ever been able to reliably predict recessions.

Please, just stop trying.

In the late 1960s, I began following the news on the economy. The first recession that I can recall occurred in 1970, when I was 14 years old. When I was writing my dissertation back in 1983, I could recall four different recessions over the previous 13 years. And that was not particularly unusual, as there were also four recessions during 1948-1960 and five recessions during 1918-30. Indeed during the first 83 years of the 20th century there were 19 recessions, roughly one every 4 1/2 years.

Since 1983, there have been just four recessions, or roughly one per decade. The term “business cycle” was always a bit misleading, as downturns did not follow a regular pattern. But at least one could view recessions as something that occurred fairly frequently. The economy seemed sort of cyclical.

Today, the term business cycle makes about as much sense as saying, “war cycle” or “pandemic cycle”. Recessions are viewed as an anomaly, not a regular feature of the economy. In 2026, an economics grad student might have a clear memory of only one recession, as the economy has been officially in the “contraction” phase of the business cycle for only 2 out of the previous 200 months—February to April 2020.

Of course that’s slightly misleading, as the economy was quite depressed in the early years of the recovery from the Great Recession, even as it was technically expanding. But there’s more. The unemployment rate has been above 4.5% for only 18 months out of the past 9 years.

Younger readers might wonder why I view that as unusual, but in the 47 years before 2017, the unemployment rate was above 4.5% well over 90% of the time.

We recently experienced our first ever soft landing with gradually moderating (but still excessive) inflation and no one seemed to notice. If you told economists back in the 20th century that we’d have a nine-year period with unemployment at or below 4.5% apart from a brief pandemic period, and that inflation would end that long period at just 2.8%, they’d ask: How does it feel to be living in nirvana? If you then told them that public sentiment on “the economy” was at near record lows (even before Iran), they’d ask if the entire country had become insane:

The University of Michigan’s long-running index of consumer sentiment registered a reading of “54” in the first snapshot of the year. Preliminary January results were released Friday, with the month’s final results coming in a couple of weeks.

To put the current 54 reading in perspective, that’s about 30 points below the survey’s more than 70-year average.

It’s also near the all-time low of 50-flat, which was hit in June 2022 at the peak of pandemic-era inflation and nearly hit again this last November.

And you cannot explain the paradox by pointing to inequality, as in recent years the fastest real wage growth has occurred among the lowest paid. This figure is from the (progressive) Economic Policy Institute.

With apologies to Charles Dickens, it was the best of times, yet it was perceived as the worst of times.

To be clear, I am not suggesting that consumer sentiment is “wrong”. It is what it is. If people feel bad about the economy, then they feel bad about the economy. I’d rather try to understand their perspective, rather than blame the public for being ignorant.

I’m more upset with the economics profession, which in my view has a flawed view of macroeconomics. There is way too much focus on business cycle forecasting, which has never been reliable. Way too much focus on real shocks and fiscal shocks, both of which are wildly overrated in importance. Way too little focus on America’s strange lack of mini-recessions and soft landings. We need to figure out what’s going on.

Long time readers know my views on these issues but given the repeated failure of recent recession predictions from mainstream pundits, perhaps it’s time for another look at the problem—from a market monetarist perspective.