Despite worries the economic growth of recent years is bound to end, the labor market, consumer spending and retail sales all seem to be faring well enough to stave off a recession in the U.S. in 2020, experts say.
The real GDP, whose movements reflect economic performance, rose 2.1 percent in the third quarter of 2019, according to the U.S. Bureau of Economic Analysis. The figure marks a fairly comparable rate of GDP increase across quarters since 2016, albeit lower than the fourth quarter high in 2017 of a roughly 3.4 percent increase in real GDP.
The numbers overall paint a picture of slowing economic growth, but that doesn’t mean a decline, said David Duell, principal economist at data company IHS Markit.
“It’s more like taking your foot off the gas pedal than hitting the brakes,” he said.
Retail sales tend to be a bit more volatile, performing well one year and dropping the next, but by that measure, too, 2019 reflected ongoing consumer confidence, he said. According to IHS Markit’s estimates, inflation-adjusted retail sales saw 2.2 percent growth in 2019. That increase is an improvement from the 1.6 percent figure of 2018, though that followed a roughly 3.9 percent rise in 2017, according to the company’s figures.
Consumer spending has also steadily ticked up in 2019, with personal consumption expenditures increasing by 0.4 percent in November, a roughly $64.9 billion increase from the previous month. The Federal Reserve repeatedly cut interest rates in 2019, making it easier to, among other things, get loans.
“It’s harder to enter a recession when you can keep borrowing,” said Duell. “At some point, the money runs out and that’s when you have a recession.”
Tipping over into a recession usually requires triggering factors. In the 2007-08 crisis, for instance, that was the housing bubble inflated by the sub-prime mortgage lending practices at the time and the financial industry’s securitization of precarious loans.
As for what those potential triggers look like in the present day, experts point to high-risk corporate debt, which lowers companies’ credit ratings, as well as student loan and auto debt.
“What do these things have in common? They’re basically a result of financial institutions looking for where the high yields are,” said Duell. “That’s a different dynamic than we had in the great recession [of 2007-08], where you had these animal spirits — with people across the economy taking on excessive risk and there was less robust regulation.”
IHS Markit’s own forecasts, based on its recession indicator model, project a 20 percent risk of a recession over the next year, which is fairly low odds, according to the company.
“If you’re describing that qualitatively, people acknowledge it’s a risk, and more of a risk during the early stages of the recovery, but it’s not imminent,” said Duell. “It would be a relatively unexpected event for the economy to enter into a recession into the next year.”