No Need to Fear a Recession…Yet
The U.S. economy grew at a 3.5 percent annual rate in the third quarter of 2018, a solid growth rate, although slower than the second quarter’s rate of 4.2 percent. Despite this good news, many economists are predicting slower growth rates in 2019, and perhaps even an economic recession as early as 2020.
According to a survey by The Wall Street Journal, most economists believe that the U.S. growth rate will slow to 2.3 percent by the third quarter of next year. Michael Gapen, chief U.S. economist at Barclays Capital, argues that this slowdown will be led by lower levels of consumer and government spending as the impact of last year’s tax cuts wears off.
However, eventually, the United States’ economy may not only slow down but also experience a recession as early as 2020, according to a survey by the National Association for Business Economics. Approximately, 10 percent of business economists predict a recession starting in 2019, about half in 2020, and a third in 2021 or later. The survey respondents cited current trade policy and higher interest rates as the most likely causes of a future recession.
Other economists – like Christine Lagarde, head of the International Monetary Fund – cite rising debt levels as a major concern. Global debt in both the private and public sectors reached a record $182 trillion in 2018, a 60 percent increase since the financial crisis.
In the United States, aggregate household debt has increased for 16 consecutive quarters and now stands at a record $13.3 trillion, which is $618 billion higher than the previous record in 2008. Moreover, credit card debt increased by 8 percent last year alone while student loan debt has more than doubled over the last decade.
There is also the opposite concern, that banks are not lending enough. An article in the New York Times stated, “A worrisome trend again showed up in their numbers: The banks were not lending at the same rate that they had in recent years. While the economy can grow without strong lending, it may struggle to maintain its strength if loan growth remains lackluster.”
The article was referencing the slow down of loans from JPMorgan Chase, Citigroup, Wells Fargo, and PNC Financial Services, which had grown only 2 percent in the third quarter relative to a year ago. This was a smaller rate increase than in previous years.
Thus, if debt grows too rapidly, it may be a sign of a recession. But if debt grows too slowly, it also may be a sign of a recession. Perhaps this is why some argue that “economists can’t forecast the economy worth a hoot.”
In any case, it seems safe to say that America will not experience a recession in 2019, at least according to most economists.