A Majority of Economists Think There Will Be a Recession by the 2020 Election

Posted on June 4, 2019 by katiecmorgan

How’s the Economy Doing?

Better than you might expect, and worse than you might have hoped, according to the National Association of Business Economics.

According to the organization’s latest survey of 53 professional economic forecasters, the consensus is that the economy will continue to grow at a 2.6% pace in 2019, down from last year’s 2.8% rate, and will slow to 2.1% in 2020. However, as the outlook for this year still seems good, a majority think a recession is possible before the next presidential inauguration.

Personal spending remains a bright spot. “The consumer continues to be the driver in the U.S. economy,” said Jack Kleinhenz, chief economist for the National Retail Federation and one of the analysts of the report. “Real personal consumption expenditures for 2019 is 2.4% year-over-year growth. It was 2.6% in 2018.”

But not all is good. “There are really headwinds in the housing market in terms of residential investment,” Kleinhenz said about this important “piece of the consumer equation.” The group expects that residential investment in 2020 will be down 1.3% from 2019’s levels. Because home prices have risen, particularly in the lower third of housing stock, many are now priced out of the market.

More than half of the panel said “the greatest downside risk is trade policy and increased protectionism,” Kleinhenz said. The thorny issue is a major driver of the possibility that growth could collapse by the end of next year. Right now, only 15% of the participants expect a recession in 2019. But by the end of 2020, the number rises to 60%. Because the November election is in the last quarter, if the majority of predictions are right, a recession would begin by then.

Only 35% thought that when the group surveyed its members in March. And these results do not fully take into account the escalated trade war situation. “Since the survey was done between May 6 and 14, 2019, the panelists could not take into account the most recent proposal by President Trump to impose a series of tariff increases from 5 to 25 percent on Mexico,” said Stephen Miller, director of the UNLV Center for Business and Economic Research at the University of Nevada, Las Vegas. “This significantly raises the uncertainty in international markets and would significantly lower the growth forecasts that are reported today as well as increase the projected likelihood of a recession.”

That drives up the chances that CEOs and CFOs could be “hesitant to spend their ample retained earnings gained over the last number of years,” said Benjamin Pace, chief investment officer and partner at Cerity Partners. “This hesitancy could slow economic growth to a trickle and even provoke recession sooner than one needs to occur based on the current strong shape of the US consumer.”

ERIK SHERMAN

FORTUNE

June 4, 2019

Stocks are plummeting, but a U.S. recession doesn’t look imminent

Posted on December 16, 2018 by katiecmorgan

Consumer sentiment has remained strong all year despite political head winds and market jitters.

Washington Post

By Heather Long
December 4
Alarm bells sounded on Wall Street this week as something happened that hasn’t occurred in a decade: The U.S. yield curve inverted. This is one of the most reliable predictors of a recession, and it spooked investors enough to send the Dow down almost 800 points (along with the realization that President Trump’s trade “deal” with China is flimsy, at best).

But this doesn’t mean a recession is happening tomorrow or even in 2019.

Roughly 70 percent of the U.S. economy is powered by consumer spending. As long as consumers are happy and opening their wallets, the economy will keep growing, and right now, consumers are in very good shape.

Here’s what happened Monday: The yield (amount of interest) on the two- and three-year U.S. Treasury bonds moved above the yield on the five-year Treasury bond. Inversion is when a short-duration bond yield is suddenly worth more than a long one.

“A flattening yield curve traditionally has been seen as a sign that investors expect future growth to weaken,” Vincent Heaney, Jon Gordon and Chris Swann of UBS wrote in a client note. “An inverted yield curve is seen by some as an early warning sign of an impending recession.”

[Trump has won little from China so far. There isn’t an ‘incredible’ deal yet.]

As UBS noted, this is an early warning sign, and it could take years for the recession to materialize. Consider that the three-year bond yield moved above the five-year in August 2005, yet the Great Recession didn’t begin until December 2007.

According to many Wall Street analysts, this week’s inverted yield curve isn’t a reason to panic but is another sign that the U.S. economy is probably peaking. Growth is widely expected to slow somewhat next year and even more so in 2020.

How much and how quickly the economy tapers is going to depend on U.S. consumers.

“This is the most confident American consumers have been in 18 years,” said Lynn Franco, director of the team that produces the Conference Board’s Consumer Confidence Index. “Just on holiday gifts, consumers plan to spend around $627 this year versus $560 last year, one of the strongest jumps we’ve seen.”

U.S. household incomes are rising as more people find jobs, and wage growth is at the highest nominal level in nearly a decade. More than 2.7 million more Americans are employed now vs. a year ago, the biggest gain since 2014. In many communities, people see visible signs of the economy’s strength when they view so many “We’re hiring!” signs around town. Franco says good job prospects are a key driver of consumer sentiment.

Consumer sentiment has remained strong all year despite political head winds and market jitters. People appear to be focusing on their own improving financial situations and not the headlines.

“Consumers have been pretty accurate forecasters of a recession,” Franco said. “There is usually a sharp decline in expectations for the future, followed by a decline in how consumers view the present situation.” But she said she’s not seeing that now.

On top of job and wage gains, many Americans have more money in their pockets from tax cuts. The typical middle-class household, earning $49,000 to $86,000 a year, received a $900 tax cut this year, according to the nonpartisan Tax Policy Center. Earlier this year, there were concerns that higher gas prices were eating up a substantial chunk of the tax savings as families had to shell out more money at the pump, but gas prices have fallen sharply in recent weeks and are now at a lower level than they were a year ago, according to the U.S. Energy Information Administration. It’s another factor helping consumers feel better off and making them likely to spend more.

“The recent drop in retail gasoline prices is poised to lift disposable income in the coming months,” said Neil Dutta, head of Renaissance Macro Research. “Disposable income is the main driver of consumption.”

[1 million Americans live in RVs. Meet the ‘modern nomads.’]

The brighter mood and fatter pockets of U.S. consumers are helping boost retail sales, according to Jack Kleinhenz, chief economist at the National Retail Federation. He expects retail sales to grow at least 4.5 percent this year, which would be the largest gain since 2014. His figures don’t include spending on gas or restaurants, so they are a good barometer of how much Americans are spending online or in brick-and-mortar stores.

If there’s a head wind for consumers, it’s debt. Household debt — mortgages, student loans, auto loans, home-equity lines of credit and credit cards — has now topped $13.51 trillion, which is above the previous peak from 2008, just before the worst of the financial crisis hit. Student loans often get the most focus since nearly 1 in 5 adults have some sort of student debt. Experts say it’s a clear hindrance, but they are encouraged that credit card and mortgage debt remain in check this cycle.

“People are using credit in a prudent way. They aren’t loading up on their credit cards,” Kleinhenz said. He pointed out that household debt as a percent of household income is low by historical standards.

An early warning sign could be car loans. Auto loans that are 90 days delinquent just hit the highest level since early 2012, according to New York Federal Reserve data. Auto loan delinquencies have steadily risen in the past six years, even as the economy has improved. It is a likely indication that lower-income Americans are still struggling, even though many states and the nation’s two largest employers — Walmart and Amazon.com — have lifted their minimum wages.

But Dutta of Renaissance Macro Research pointed out that disposable income has been rising 3.1 percent in the past five years while consumption has risen 3 percent, meaning a lot of people are living within their means. Dutta said that is a “dramatic departure” from the late 1990s and early 2000s, when consumption outpaced income by a sizable amount.

This week’s inverted yield curve is a reminder that the economic head winds at home and abroad are picking up. But experts say to watch the consumer for the best gauge on the U.S. economy’s health. So far, most signs point to ongoing strength.

Wall St. sees rate hike in June: CNBC Fed Survey

Posted on March 15, 2016March 15, 2016 by katiecmorgan

Wall Street sees the Federal Reserve and its interest rate hike as down, but decidedly not out.

Ninety-five percent of the 42 respondents to the CNBC Fed Survey predict no rate hike at the March meeting, which begins Tuesday. A decision comes on Wednesday followed by a news conference from Fed Chair.

But nearly all the economists, fund managers and strategists believe that the U.S. central bank’s next move will be to raise interest rates and, on average, believe that next hike will come in June. In fact, 83 percent say the Fed’s next hike could come in June or even earlier, with a small minority saying April or May.

“Since the last FOMC meeting, U.S. GDP tracking estimates have moved up, the unemployment rate has ticked down, core inflation has firmed, the US dollar has sold off, and broader financial conditions have eased modestly,” wrote Neil Dutta, head of economics at Renaissance Macro Research, in response to the survey.

Respondents to Fed survey are also more optimistic on stocks. The S&P 500 (^GSPC) is forecast to end about 3 percent higher this year and 9 percent higher by the end of 2017. Those forecasts had come down sharply during the recent market sell-off.

On average, respondents see the Fed hiking twice this year, two fewer hikes than the median forecast of members of the rate-setting Federal Open Market Committee. That number will likely come down after the Fed releases on Tuesday a new set of FOMC projections, the first of the new year.

Jack Kleinhenz of Kleinhenz & Associates sees the better economic data, but still believes the Fed “will remain in a holding pattern until some of the world worries have been reduced.”

Yet, while forecasts for the 10-year yield(U.S.:US10Y) came down with the sell-off, they have not rebounded. Treasury yields are seen rising from their current levels but the forecast remains muted. The yield, currently at 1.96 percent, is seen rising to just 2.34 percent by the end of the year, about 20 basis points less than had been forecast in the January survey. The yield in 2017 is projected to increase to 2.83 percent, about on par with the prior survey.

Interestingly, the outlook for inflation has worsened, though it still remains low. This year, the consumer price index is forecast to rise to 2.14 percent, about the same as in January, but in 2017, inflation is seen going up to 2.41 percent, about 10 basis points worse than the prior survey.

“Rising core inflation and falling unemployment should have a data-dependent Fed raising rates next week. It is unlikely to. Communications are a mess,” said John Ryding, chief economist at RDQ Economics.

The risk of the U.S. entering recession has come down to 24 percent from its recent high of 29 percent in January. Global economic weakness is seen as the biggest threat to the economic recovery, while tax and regulatory policies are second. GDP is expected to remain around 2 percent for this year and next.

And there are also political worries. “Beyond global economic weakness we worry political rhetoric and the outcome of the presidential election could negatively impact the market, as investors never like uncertainty,” said John Roberts, director of research at Hilliard Lyons. “Political polarization is certainly not positive for the equity markets.”

The CNBC survey was conducted March 10 and 11.

By Steve Liesman