A panel of leading economists is dialing down its forecasts for U.S. economic growth next year and putting strong odds on a recession in 2021.
“Eighty percent of the panelists see risks weighted to the downside,” Constance Hunter, president of the National Association for Business Economics, said Monday at the group’s annual meeting in Denver.
The NABE Outlook, an amalgamation of 54 separate forecasts, calls for inflation-adjusted GDP growth to dip from 2.3% this year to a 1.8% pace next year.
That would be the slowest growth the country has seen since 2016, when low oil and natural gas prices weighed on drilling activity and manufacturing. In June, the NABE Outlook had called for GDP growth of 2.6% this year and 2.1% for next year.
The Outlook doesn’t forecast an imminent recession, but it puts the odds of a recession by late 2020 at 47% and by mid-2021 at 69%.
Hunter said the Outlook calls for the U.S. unemployment rate, which hit a 50-year low of 3.5% in September, to creep up slightly next year to 3.7%.
Monthly gains in nonfarm payrolls are expected to slow to an average of 164,000 this year and 129,000 next year. In 2018, they averaged 223,000 per month.
Inflation, which is expected to run 1.8% this year, will rise to 2.1% next year, partly because of rising import costs from higher tariffs.
Driving the more dour mood is a rise in protectionism, pervasive uncertainty in trade policy and slower global growth. But economists speaking Monday at the NABE conference said if a recession comes, it won’t be anything like what the country suffered in 2008.
“I’m less worried about a financial crisis than a conventional downturn,” said Christina Romer, a professor of economics at the University of California-Berkeley.
Romer said today’s low unemployment rate was unimaginable back in 2010 when she was serving as head of the Council of Economic Advisers in the Obama administration and trying to help pull the country out of its worst downturn since the 1930s.
“Where we are right now is pretty good,” said Romer.
But trade tensions pose a risk to the economy, which will only grow the longer they drag on. Supply chains are getting “messed up,” she said.
Europe’s economy is slowing and Brexit, the Great Britain’s departure from the European Union, could accelerate a downturn if not handled right.
Romer is in the camp of those who view the U.S. as being relatively insulated from a global slowdown. Only 28% of the U.S. economy is dependent on trade, she said.
If world GDP growth declines by 3 percentage points, the U.S. economy would see a drop of 0.5 percentage points in growth. More than that would be needed to trigger a contraction.
Nela Richardson, an investment strategist with Edward Jones, said all the rhetoric aside, the U.S. and China need each other. She expressed confidence that they would reach a trade deal and craft the “biggest prenuptial agreement in the history of the world.”
Broomfield economist Gary Horvath, who attended the conference, said Colorado has seen its labor markets strengthen, not weaken, this year.
The state’s unemployment rate, which was at 3.7% in January, fell to 2.8% in August.
Home price appreciation in metro Denver is slowing, but is now in line with national averages. Prices aren’t going flat or declining, as has been the case in once-hot markets like Seattle and northern California.
“People on the street are upbeat,” he said. “Colorado consumers still seem willing to spend.”
But he also acknowledges that higher tariffs will weigh on the state and other economists also argue that the U.S. consumer can’t hold up the entire economy on their own. Businesses will need to start investing again, and to do that they will need more clarity, especially on trade issues.
Edward Lazear, a professor of economics at the Stanford Graduate School of Business, said it is rare for events outside the country to push the U.S. economy into a recession.
“The wounds we suffer are almost always self-inflicted,” he said.