The economic outlook for 2019 and 2020 published by the American Bankers Association’s (ABA) Economic Advisory Committee is less optimistic than it has been in recent years but still projects growth – just not as much in light of expected shifts in the U.S. policy and the global economy.
Based on the opinions of 15 chief economists from major North American banks, the committee expects a more moderate pace of growth than the last two years – 2.1 percent in 2019 and 1.7 percent in 2020 – noting that would make the current expansion the longest in U.S. history.
The committee said the slowing growth prediction reflects fading policy support in the U.S. and a slowing global economy.
“A strong consumer sector and moderate business investment, along with full employment and rising wage growth, should sustain the expansion,” Comerica Bank EAC Chairman and Chief Economist Robert Dye said in a press release.
The committee anticipates higher mortgage interest rates, which will impact the demand for housing, with growth in home prices dropping to 4.4 percent nationally in 2019 and 3.3 percent in 2020.
The committee expects rates on three-month, two-year and 10-year Treasuries to rise about half a percent from present levels to finish the year at 2.9 percent, 3 percent, and 3.2 percent, respectively. Similarly, the committee expects 30-year fixed rate mortgage rates to finish the year at 4.9 percent.
The committee expects consumer credit to grow at 4 percent and business credit to grow at 3.2 percent in 2019.
“The strength of the banking industry will continue to support growth in the economy,” Dye said.
The committee anticipates a continued decline in the national unemployment rate to decline to a 60-year low of 3.5 percent by year-end, with average monthly job growth abating from more than 200,000 last year to a still-robust 160,000 in 2019. It also expects private average hourly earnings to increase 3.4 percent this year.
“Given the tight labor market, firms will be forced to pay up to hire,” Dye said. “More jobs and rising pay should keep confidence elevated and consumer spending healthy.”
The committee also forecasts household spending growth to hold above 2 percent in 2019, and said purchases of durable goods, including automobiles, are predicted to remain strong, though less so compared with the 2017 high.
A recession is not in the cards for 2019 or 2020, according to the committee. However, its members recognized the heightened uncertainty and increasing downside risk for the national and global economy, predicting a 20 percent chance of a U.S. recession this year and 35 percent in 2020.
“A range of developments pose threats, particularly cooling global growth, recent financial market volatility, ongoing trade tensions and political uncertainty,” Dye said. “However, if tariff tensions can be resolved it will boost business sentiment.”
The committee asserted that the economy has been resilient against shocks over the past decade.
“The strength of households and the banking sector will promote stability in the U.S. economy, despite the headwinds,” Dye said.
“The Federal Reserve is likely to achieve a soft landing for this economy with healthy labor markets and inflation holding near 2 percent,” he added. “Therefore, the Fed is likely to slow the cadence of rate hikes this year, and we expect no more than two 25-basis point increases.”