By Susan Tompor
Could the U.S. economy really avoid a recession in 2020?
The answer is yes.
The longest economic expansion in U.S. history, which kicked off in June 2009, apparently has more gas in the tank. It's quite a change from last summer's cloudy rumblings when some experts saw the the odds going up for the possibility of a recession by mid-2020.
Remember back in August when the Dow Jones industrial average tanked 800 points in just one day after a key signal in the bond market fueled fears of a recession ahead? The Dow closed at 25,479.42 on Aug. 14.
Now, never mind.
"I expect that the U.S. economy will avoid a recession in 2020," said Robert A. Dye, chief economist at Comerica Bank.
Look for modest growth in 2020. Dye is forecasting that the nation's gross domestic product – the value of all goods and services produced in the U.S. – will increase at a seasonally adjusted annual rate of 1.9% in 2020. That's cooling down from 2.3% in 2019.
No recession isn't a done deal
While the outlook is generally rosy now, the no-recession mantra is far from written in stone.
All it takes is one more big run-in with China. Or a shift toward rising interest rates to drive up the cost of bloated corporate debt enough to send another round of pink slips to America's workforce.
And there's all the political drama: President Donald Trump's impeachment (Trump is not expected to be removed from office by the GOP-led Senate), as well as the 2020 Democratic presidential primary debates, primaries and caucuses.
"Consumer and business confidence may slip as negative campaigning increases through 2020," Dye said.
"It is fair to say that the business community has concerns about either a Sanders or a Warren presidency," Dye said, referring to Democratic candidates U.S. Sens. Bernie Sanders and Elizabeth Warren.
Slower growth, of course, means that the U.S. economy would be more vulnerable to any hiccups or outside shocks that might trigger a downturn.
Yet if a recession took place, Dye said, it's more likely that it would be less damaging than the last recession, which ran from December 2007 to June 2009.
Market watchers are using the adjectives "shallow" and "short-lived" to describe any possible recession in the near term.
Growth expected to be middling
Most aren't forecasting economic mayhem in 2020.
A no-recession forecast for 2020 was issued by University of Michigan economists, as well.
The forecast, produced by U-M's Research Seminar in Quantitative Economics, noted that "economic growth has subsided after a sugar high of corporate tax cuts, investment incentives and lavish federal spending."
As a result, the economy is likely to slow down but not come to a standstill. The U-M economists said: "Real GDP growth in 2019 promises to be middling."
Among other things, the U-M forecast is calling for:
Light vehicle sales to slow to 16.8 million cars and light trucks in 2020 and 16.7 million vehicles in 2021 – down from an expected 17 million units in 2019.
The annual U.S. jobless rate to inch down further to 3.5% in 2020 and 3.4% in 2021 – down from 3.7% in 2019.
Job gains to stay steady in the 130,000 to 140,000 per month range in 2020-21.
Total housing starts to rise modestly to 1.26 million units in 2020 and 1.28 million units in 2021 – up from 1.25 million in 2019.
Key signals to watch include jobs, consumer confidence, consumer spending and trade.
Consumers need paychecks to keep spending
Economic anxiety was clearly the backdrop of the 2016 presidential election. New data released by the U.S. Commerce Department's Bureau of Economic Analysis show how a national slump in economic growth in 2016 fell most heavily on "Trump country," according to a December report by Reuters.
A weak jobs picture in many parts of the country, including small towns and rural communities, fueled Trump's campaign pledge to protect U.S. manufacturing and bring back jobs to the country.
If the U.S. jobless rate starts going up, consumers could become increasingly on edge. Kiplinger's noted that if the jobless rate starts rising above 4%, we likely would be looking at the start of a recession.
Companies seem to continue to find all sorts of excuses to cut back or hold back on making investments – the trade war, the worries about impeachment proceedings, softening economies abroad.
Federal Reserve Chairman Jerome Powell said in mid-December that he's picking up a "mood of concern, or it's a mood of angst about growth going forward."
Yet the lowly shopper has kept on shopping, either online or stopping by traditional stores.
Consumer spending has been key to the U.S. economy as business investment has slacked off.
"Consumers have been pulling their weight," said Kurt Rankin, economist for the PNC Financial Services Group, noting that consumer spending has remained the main driver of economic growth.
If consumers lose jobs – or lose confidence for some reason – they would be more likely to hold onto their wallets more tightly in 2020.
Rankin said he will be keeping an eye on personal consumption expenditures, or household spending, in the new year.
Trump's trade war with China – or what Rankin says often has turned into trade rhetoric – created much uncertainty in 2019 for the stock market, as well as for business owners. Many times, a late-hour deal clears the air and allows the economy to move ahead.
"President Trump's truce in the trade war has reduced recession odds in 2020 to well less than even," said Moody's economist Mark Zandi.
"But since the trade war remains unsettled and will likely revive after the election if Trump is re-elected, businesses will remain cautious and economic growth in 2020 will be pedestrian," Zandi said.
Some market watchers even think that the U.S. bull market for stocks could celebrate its 11th birthday in March 2020.
"If a recession was likely," Zandi continued, "the stock market would fall sharply in value, as investors anticipate a tough economy and falling corporate profits."
"Big declines in consumer confidence are also a red flag that a recession is imminent," Zandi said.
Zandi said the odds of a recession in 2020 clearly have declined.
But he expressed concerns that a recession could hit in 2021, particularly if Trump is re-elected and opts to double-down on his trade war.
"A revival of the trade war with China is the prescription for a recession," Zandi said.
Right now, he said investors are ignoring the impeachment because it is likely that Trump will "remain president and the impeachment doesn't appear to have any bearing on how people will vote in the upcoming election."
Investors and businesses could turn very unsure about the economy, though, in 2020 depending on the course of the presidential elections, given the wide differences in economic policy espoused by Trump and the Democratic candidates, he said.
Moving into early 2020, though, the optimism remains fairly high, thanks to a combination of low interest rates, improving profits and less uncertainty on tariffs, according to David Sowerby, managing director at Ancora Advisors.
Companies continue doing deals and acquisitions, as well, he said.
"The economy will stay positive in 2020," Sowerby said, "But keep looking over your shoulder for signs of weakness."
Contact Susan Tomporat 313-222-8876 or [email protected]. Follow her on Twitter @tompor. Read more on business and sign up for our business newsletter.