This month marks the eighth anniversary of the Great Recession officially ending, and while the next major downturn could still be a couple of years away, economists are warning of a possible stock-market correction and stagflation before then.
"We have an accommodating monetary policy at the central bank, which will fuel inflation coupled with a restricted labor-force mobility, creating labor shortages on top of increased demand," said Linda Allen, a banking and finance professor at New York's Baruch College. "We won't be able to supply that growth, which will result in higher prices and lower output."
According to the National Bureau of Economic Research (NBER) -- the body that officially calls U.S. business-cycle expansions and contractions -- the Great Recession ended eight years ago this month in June 2009:
That's an unusually long time to go between recessions, but even after eight years of modest U.S. economic expansion, few experts see another downturn on the immediate horizon.
"This is the most modest recovery in the post-war era," LaVorgna said. "There might still be pent-up demand."
Jan Hatzius of Goldman Sachs (GS - Get Report) echoed that sentiment in a May 22 research note, writing: "using our recession probability model, we recently estimated that there is a roughly two-thirds probability that the expansion will last at least another nine quarters to become the longest on record, dating back to the 1850s."
Laura Veldkamp, an economics professor at New York University's Stern School of Business and a faculty research fellow at NBER, says a recession could happen more quickly than that, but she doesn't "see tremors" indicating one yet.
Still, Other Problems Loom
It's hard to tell when the next recession might happen partly because hardly anyone anticipated the last recession, said Geoffrey Heal, a Columbia Business School finance and economics professor.
Heal noted that the markets have been hitting record highs recently, so he is "looking for a stock-market correction in the next year or so, but that is less than a recession."
However, he said pinning down a correction's exact timing is difficult considering the uncertainty around the U.S. political agenda.
Still, Linda Allen, the Baruch College banking and finance professor, said we might have a perfect "recipe" for stagflation.
"We have a recovery that is pretty robust, but there is a great disparity in the unemployment rates across the country," she said. Workers have historically tended to go from high unemployment states to low unemployment states, but that labor mobility has gone down. "A decline in labor mobility could cause stagflation," Allen said.
Forecast: The Long, Weak Recovery Continues
That said, there are few indications that we're heading toward a severe recession.
"The lack of an apparent connection between the magnitude of booms and busts in the United States and abroad suggests that there is little reason to believe that the impressive duration of the current expansion alone implies that the next U.S. recession is likely to be particularly severe," Goldman's Hatzius wrote in his May 22 note.
And although June 2009 technically marked the Great Recession's end, only some believed at the time that the 2007-09 global financial crisis was actually coming to a close.
Part of the reason for that was that generally speaking, there's a sharp economic rebound following a recession. "The rebound is missing" from the Great Recession, said Stern School Professor Veldkamp.
But given that the U.S. economy has been expanding at a slow and steady pace, she believes there's a good chance the current expansion will become the longest one on record.
How to Play Things
However things play out, experts say that investors should diversify their portfolios before the next recession invariably hits.
"An investor should start moving out of equities and move into bonds," Heal said.
Deutsche Bank's Lavorgna said bonds "tend to give you an advance lead rather than equities," although he added that "if you don't think there is a recession for the next couple of years, it's too early for the bunker-like mentality."
How should you prepare for the next recession, and how should you play the markets in June? Check out our special June Trading Strategies report for answers, including our columnists' take on:
Editors' pick: Originally published June 2.