(Feb 3, 2020) The Ben Franklin Forum Presents: 2020 Economic Forecast – Hosted at the Center Club of Orange County, CA
Presented by Dr. Mira Farka, ECONOMICS – ASSOCIATE PROFESSOR Co-Director, Woods Center for Economic Analysis and Forecasting
Authors Note: This article is base on my notes and best recollections of the event. I apologies in advance for errors because I am sure there are some. The slides and presentation are the work of Dr. Mira Farka, the notes and Authors Notes are by Phil Sallaway.
Dr. Mira Farka joined the Department of Economics at California State University, Fullerton in August 2005. She received her Ph.D. in Economics from Columbia University, New York, in 2004 with concentration in financial economics, monetary policy, and applied macroeconomics
We are in the mist of the longest expansion in history so folks are worried about just how long can it last…?
To set things in perspective we took a tour of current and past events. Starting with how the Corona virus affected the Asian Markets which took the biggest hit at 8%. This has reverberated through global market sentiment. Putting that in perspective: looking at SARS, 1st month drop 1 month .2 to 6% in various markets. Ebola Swine flu estimate off world GDP. MERs, H1N! She expects Corona Virus to reduce Global GDP by .4 – .5 % Mostly due to travel restrictions & reduced travel.
The Global consensus for economic 2019 forecast for was 3.7%. According to the International Monetary Fund it ended up an estimated 2.9% year end, and projected to be 3.3% in 2020 and 3.4% in 2021.
Trade wars most impact was to Manufacturing – Production due to high exposure plus recession fears.
Everyone expected a Bear Market in 2019…. but that did not happen, it was very good year.
In a Wall Street Journal pol in Oct 2019, of the respondents: 48% predicted recession in 2020, and 27% predicted a rescission in 2021.
She when over the four main causes of recession and where we are at risk wise for each of the four reasons. (Fiscal Tightening Reduces Lending, Unforeseen Economic Shocks, Fiscal Imbalances, Fed Over Tightening).
No Overheating, fed has played its hand well not to tight not tool loose Inflation & labor markets tame. Financial Imbalances: in terms of Banks and Households are in good shape. Expansion is one of the Slowest Low growth less than in the 1960s Slide
Indicators Risks compared to the past only the Production – Manufacturing and the Yield Curve indicate caution. Manufacturing & Production represent only 10% of the economy, and 9% of the employment and weakness her s may slow things a bit but with 90% of the economy being in services it won’t be all that much.
The Yield curve is a concern but not an Alarm. Slide the long rates are 60 basis points below where it should be. She suggested due to QE 1 & 2 . Can Revert and did in the past where the Fed Stopped Tightened which improved the cure in the past.
Goldilocks economy Labor market strong Layoff rates are the lowest ever since they started recording some 20 years ago, Quit rate up as well. Improving Trade Situation will help manufacturing an energy the most. Lower Mortgage rates 1.5 millions homes demand for new housing demand is over that , if demand is below there is surplus. Service Sector outlook Job growth. Unemployment, there are currently 224k new unemployed, if rises to 250k month it will be an issue and the start of a change.
The economic cycle globally and where each major economy is in the current cycle.
Consumer positive but Biz and fiscal policy is pessimistic.
Business is feeling cautious about 4th qtr 2020 or 1st qtr 2020 Boeing knocked or will knock of .4 -.5 off US GDP plus .5 off Global GDP from Corona Virus.
Risks….. Elections can create risk, there are highly polarized feelings about both politics and about the economy. The Conservatives are as pleased 77% positive, with the economy as the Liberals are displeased at 61% negative.
Radical differences in the issues from healthcare to Taxes, Businesses are concerned about things that can change taxes, redistribute wealth cause uncertainty or result in new winners – losers in the business world change the rules they planned on or play by.
On one end of the spectrum you have Trump and to some extent Biden with: More or less or Moderate on Taxes and Moderate Healthcare changes in the middle is Butigig an on the other end is Warren and Bernie Sanders who propose Higher Taxes, Expanded Healthcare and Spending increases along with Student Debt forgiveness (adding a large amount of debt).
We are seeing a bit of a slow down, mostly in the manufacturing sector and to some extent across the board. Yet there is not a recession predicted in most forecasts. It looks like there will continue to be growth, slow but none the less growth.
Authors Note: “n the United States, the Core Personal Consumption Expenditure Price Index provides a measure of the prices paid by people for domestic purchases of goods and services, excluding the prices of food and energy. The core PCE is the Fed’s preferred inflation measure.” The central bank has a 2 percent target.
Orange County, CA followed the national trends., in job creations She forecasts a 1% job growth in 2020.
Housing construction has slowed and prices are up but treading water home price growth has slowed and is moderation expect a 1.2% growth due to lower mortgage rates. It was observed that Debt and quality & Quantity of Borrowing Good
She measured Optimism as good per her home grown index
Biz expectations are good, 60% expect profits to increase, 32% feel they will stay the same, and 8% see a decline. Their view on Sales it that 68% expect and increase, 32% expect flat sales, and 8% expect a decrease. Hiring is flatter 42% see an increase, 48% expect no change, and 10% see a decline in hiring. Interestingly enough only 27% plan on increasing investment in their business, 67% will keep it the same, and 5% plan a decrease.
Biggest perceived treats are Political turmoil at 46% Tariffs & Trade agreements 32% 8% China 6% Interest rates
Per executives polled, only 6% think there is a greater than 50% chance of a recession. 76% see a less than than 20% chance of a recession by the end of 2020.
Authors Conclusions: The Death of this Expansion is pre-mature. It looks like we are in a Goldilocks economy not too hot not too cool, but just right. Because we are sitting in the middle of it, its kind of hard to recognize. The data suggests that 2020 to 2021 will be better than many expect, maybe not as good at 2019. There will be ups and downs, a correction or two, acceleration and de-acceleration yet over all it will be a good 1 – 2 years.