Will Us Economy Continue to Grow 2020
The United States economy is now in its eleventh year of expansion.
Can the United States economy continue to grow?
Neil Irwin of the New York Times begins his column this morning with the statement:
"There is at least one bull market underway: in recession fears."
Recession talk has expanded over the past several months as more and more pundits have spent their time looking for the disruption that will send the US economy into a tailspin.
My own feelings? I have remained pretty much in line with the story that the Federal Reserve System has been putting out.
Federal Reserve officials believe that future growth will be relatively tepid, mirroring pretty well the tepid pattern that has been achieved over the past ten years of the economic recovery.
The compound rate of growth of the US economy in the current recovery period has been 2.2 percent. Federal Reserve officials expect US growth to be 2.1 percent in 2019, 2.0 percent in 2020, and 1.8 percent in 2021. For the longer term, the expectation is for growth to be around 1.9 percent.
Ho-hum…
The economic expansion has been driven by consumer spending. Looking forward, consumer expenditures seem to be the force that will continue to support economic growth, even though it will be quite modest.
Remember, the foundation for the current recovery has always been consumer spending as Ben Bernanke, former Fed Chair, designed the monetary policy underwriting the expansion to create a wealth effect in the stock market that would drive and sustain the expansion of the economy from the Great Recession.
History will support the fact that Mr. Bernanke's plan has been extremely successful.
Fiscal policy, during this time period, has provided a little additional contribution to this picture.
In fact, I have argued that it has really been the supply-side of the economy that has driven the expansion. The supply-side bought onto the efforts of Mr. Bernanke and the Fed and moved to provide the consumer goods and services that were the major source of the rising GDP.
Real capital investment expenditures never really played much of a role in this picture. Physical capital was acquired during this time period, but it never provided much stimulus overall.
The crucial thing was that unemployment dropped, recently reaching a fifty-year low at 3.7 percent. This result was totally unexpected but was a very welcome addition to the picture.
The labor force participation rate has not been exactly what the policymakers would have liked, but it seems to be on the upswing these days. Furthermore, increasing wage payments also seem to be on the rise.
The disappointing factor in all of this seems to be the fact that the growth in labor productivity has been mediocre, at best. Combining this fact with a slow rate of increase in the labor force, we have an argument for why the supply side of the economy grew at such a slow pace.
In other words, the labor markets seem to be relatively robust and continue to improve, but growth seems to be limited by the rise in labor productivity over this time period.
But, there is no reason why this growth rate cannot continue, even if it is only around 2.0 percent.
The growth would be based upon a slow but steady expansion of consumer spending based upon a relatively full and growing labor market.
There may be other things that we need to look at, but most of these other things would add "micro" analysis to the aggregate picture we are now looking at. And, many of these things, I believe, would support our picture of sustained expansion because they are related to the new technological changes that are impacting the US economy.
The biggest fear on the horizon concerning the possibility of a US economic recession is the situation relating to the trade negotiations going on between the United States and China. The uncertainty these discussions have brought to world markets have produced a lot of the concern about a future recession.
Be that as it may, the current administration in Washington D.C. is certainly not going to sit idle and just let a recession dominate the next 16-month presidential campaign.
There is no doubt that the probability that a recession will occur in the next two years is higher now than it was last year.
But, there is no reason that the current expansion will not go on as the Federal Reserve has projected.
Economic growth will be nowhere near the 3.0 percent to 4.0 percent range that President Trump was hoping for, but a 2.0 percent rate of expansion is not all bad.
The interesting thing is that inflation has remained so low during this current period of economic expansion, especially since the Federal Reserve System flooded the banking system with liquidity during much of the time. And, there still remains a massive amount of "excess reserves" in the banking system to this date.
Furthermore, the inflationary expectations built into government bond yields show that investors are not expecting that the rate of inflation over the next ten years will be anywhere near the Fed's target rate of inflation of 2.00 percent. Recently, in fact, the ten-year inflation rate built into US Treasury yields has been closer to 1.60 percent than to the 2.00 percent target.
So, yes, the United States economy can continue to grow and avoid a recession over the next few years. Just don't expect the economic growth rate to be too high.
But, this is not a bad scenario for the stock market to retain its current level or go higher.
This article was written by
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Source: https://seekingalpha.com/article/4289968-united-states-economy-can-continue-to-grow-avoiding-recession
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