Nation & World

Could the U.S. economy really avoid a recession in 2020?

Will the economy steer clear of a recession?

Companies have cited the trade war with China, among other ongoing concerns, as reasons to cut back or hold back on maki
Companies have cited the trade war with China, among other ongoing concerns, as reasons to cut back or hold back on making investments. China’s President Xi Jinping and President Donald Trump shake hands in 2017, during a meeting outside the Great Hall of the People in Beijing. (Abaca Press/TNS)

The answer, as of late December anyway, is yes.

The longest economic expansion in U.S. history, which kicked off in June 2009, apparently has more gas in the tank. It’s quite a change from last summer’s cloudy rumblings when some experts saw the odds going up for the possibility of a recession by mid-2020.

Remember back in August when the Dow Jones Industrial Average tanked 800 points in just one day after a key signal in the bond market fueled fears of a recession ahead? The Dow closed at 25,479.42 on Aug. 14.

Now, never mind.

“I expect that the U.S. economy will avoid a recession in 2020,” said Robert A. Dye, chief economist at Comerica Bank.

Look for modest growth next year. Dye is forecasting that the nation’s gross domestic product — the value of all goods and services produced in the United States — will increase at a seasonally adjusted annual rate of 1.9 percent in 2020.

That’s cooling down from 2.3 percent in 2019.

No-recession isn’t a done deal

While the outlook is generally rosy now, the no-recession mantra is far from written in stone.

All it takes is one more big run-in with China. Or a shift toward rising interest rates to drive up the cost of bloated corporate debt enough to send another round of pink slips to America’s workforce.

And there’s all the political drama: President Donald Trump’s impeachment (Trump is not expected to be removed from office by the Republican-led Senate), as well as the 2020 Democratic presidential primary debates, primaries and caucuses.

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“Consumer and business confidence may slip as negative campaigning increases through 2020,” Dye said.

“It is fair to say that the business community has concerns about either a Sanders or a Warren presidency,” Dye said, referring to Democratic candidates U.S. Sens. Bernie Sanders and Elizabeth Warren.

Slower growth, of course, means the economy would be more vulnerable to any hiccups or outside shocks next year that might trigger a downturn.

Again, might.

Yet if a recession took place, Dye said, it’s more likely that it would be less damaging than the last recession, which ran from December 2007 to June 2009.

Market watchers are using the adjectives “shallow” and “short-lived” to describe any possible recession in the near term.

Growth expected to be middling

Most aren’t forecasting economic mayhem in 2020. A no-recession forecast for 2020 was issued by University of Michigan economists, as well.

The forecast, produced by the UM’s Research Seminar in Quantitative Economics, noted that “economic growth has subsided after a sugar high of corporate tax cuts, investment incentives and lavish federal spending.”

As a result, the economy is likely to slow down next year but not come to a standstill. “Real GDP growth in 2019 promises to be middling,” The U-M economists said.

Among other things, the UM forecast is calling for:

• Light vehicle sales to slow to 16.8 million cars and light trucks in 2020 and 16.7 million vehicles in 2021 — down from an expected 17 million units in 2019.

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• The annual U.S. jobless rate to inch down further to 3.5 percent in 2020 and 3.4 percent in 2021 — down from 3.7 percent in 2019.

• Job gains to stay steady in the 130,000 to 140,000 per month range in 2020-21.

• Total housing starts to rise modestly to 1.26 million units in 2020 and 1.28 million units in 2021 — up from 1.25 million in 2019.

Next year, key signals to watch include jobs, consumer confidence, consumer spending and trade.

Consumers need paychecks

Economic anxiety was clearly the backdrop of the 2016 presidential election. New data released by the U.S. Commerce Department’s Bureau of Economic Analysis show how a national slump in economic growth in 2016 fell most heavily in parts of the country that voted for Donald Trump, according to a December report by Reuters.

A weak jobs picture in many parts of the country, including small towns and rural communities, fueled Trump’s campaign pledge to protect U.S. manufacturing and bring back jobs to the country.

Next year if the U.S. jobless rate starts going up, consumers could become increasingly on edge. Kiplinger’s noted that if the jobless rate starts rising above 4 percent, we likely would be looking at the start of a recession.

Companies seem to continue to find all sorts of excuses to cut back or hold back on making investments — the trade war, the worries about impeachment proceedings, softening economies abroad.

Federal Reserve Chairman Jerome Powell said in mid-December that he’s picking up a “mood of concern, or it’s a mood of angst about growth going forward.”

Yet the lowly shopper has kept on shopping, either online or stopping by traditional stores. Consumer spending has been key to the U.S. economy as business investment has slacked off.

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“Consumers have been pulling their weight,” said Kurt Rankin, economist for the PNC Financial Services Group, noting that consumer spending has remained the main driver of economic growth.

If consumers lose jobs — or lose confidence for some reason — they would be more likely to hold onto their wallets more tightly in 2020.

Rankin said he will be keeping an eye on personal consumption expenditures, or household spending, in the new year.

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