United States Economic Forecast

United States

Economic Forecast

4th Quarter 2019

Deloitte Global Economist Network

The Deloitte Global Economist Network is a diverse group of economists that produce relevant,

interesting, and thought-provoking content for external and internal audiences. The network¡¯s

industry and economics expertise allow it to bring sophisticated analysis to complex, industrybased questions. Publications range from in-depth reports and thought leadership examining

critical issues to executive briefs aimed at keeping Deloitte¡¯s top management and partners

abreast of topical issues.

Contents

Introduction 2

Scenarios 3

Sectors 5

Consumer spending 5

Housing 7

Business investment 9

Foreign trade 11

Government 14

Labor markets 16

Financial markets 18

Prices 20

Appendix 22

Endnotes 26

United States Economic Forecast

Introduction

Coming in for a (soft) landing?

¡°I

F YOU CAN walk away from a landing,¡± test

impose additional tariffs, often unexpectedly.

pilot Chuck Yeager is supposed to have said,

The tariffs have been met with retaliation (espe-

¡°it¡¯s a good landing.¡± That¡¯s not quite true for

cially on the part of China). The results: slowing

economies: A bumpy landing might be quite

exports and more uncertainty, adding to the

uncomfortable, especially given the considerable

reluctance of businesses to spend money

risks facing today¡¯s economy. And there¡¯s no ques-

on investment.

tion that the US economy is coming in for a landing.

A slowdown in late 2019 and early 2020 has been a

? The Federal Reserve continued the tightening

feature of the Deloitte US economic forecast since

cycle it started in 2015 until this past summer.

early 2018, so this is hardly a surprise. But it leaves

The high level of uncertainty and falling busi-

a question: Just how rapidly will the economy

ness investment (and recession in the

slow¡ªand could it slow enough to actually crash?

manufacturing sector), combined with the lack

of inflation, convinced most of the decision-

The landing is particularly complicated because

makers at the Fed that monetary policy needed

policymakers have jiggled the controls on the econ-

to be more accommodating. Since then, the Fed

omy several times in the past two years. Here¡¯s a

has lowered the funds rate three times and

list of the major policy changes¡ªand, yes, that¡¯s

started to purchase Treasuries to increase

more than usual in such a short period of time.

reserves.

? The 2017 tax cut bill put a substantial amount

Despite, or perhaps because of these offsetting pol-

of short-term demand into the economy in the

icy moves, the US economy is moving gradually

first half of 2018. And the economy responded:

toward its long-run potential growth rate of

The 2018 growth rate was nearly 3.0 percent,

between 1.5 percent and 2.0 percent. Don¡¯t be sur-

considerably above the forecast rate.

prised if that slowdown is accompanied by a few

bumps, in the form of ugly monthly or quarterly

? The 2018 budget agreement raised spending in

data releases. But monthly data is volatile¡ªand a

2018 by quite a bit, which added to the growth

single weak release does not indicate that the econ-

of short-term demand and helped to boost the

omy is headed for recession.

growth rate.

There is, however, one area of substantial concern:

? The 2018¨C19 government shutdown temporar-

The manufacturing sector is in recession, at least

ily reduced demand and added to uncertainty.

according to the Wall Street Journal Survey of

That helped to reduce spending¡ªespecially

Forecasters.1 As of November, manufacturing out-

business spending¡ªin the subsequent quarters.

put was down for the year. Most analyses attribute

the slowdown to a combination of trade restric-

? Starting in 2017 and continuing through today,

tions and business uncertainty about

the Trump administration has continued to

policy¡ªespecially trade policy.2 The manufacturing

2

4th Quarter 2019

FIGURE 1

Real GDP growth

Baseline

Coordinated global recovery

Recession

Continued slow growth

Percent

5

4

3

2

1

0

-1

-2

History

Forecast

-3

1995

2005

2005

2010

2015

2020

Source: Deloitte analysis.

Deloitte Insights | insights

slowdown is global and has already had an econo-

The baseline (55 percent probability):

mywide impact in Germany and China. The rest of

Uncertainty from the trade war with China damp-

the US economy could start to feel it soon.3

ens investment spending. Employment and

consumer spending are slow but remain relatively

strong. Employment growth stays above the

Scenarios

replacement level for another year or two but eventually slows to below 100,000 per month as the

Our scenarios are designed to demonstrate the dif-

stock of potential workers is exhausted. While gov-

ferent paths down which the administration¡¯s

ernment spending does not fall, it no longer

policies and congressional action might take the

contributes to accelerating growth. Growth slows

American economy. Foreign risks are, if anything,

below potential in 2020 but picks up to potential (a

rising, and we¡¯ve incorporated them into the sce-

bit below 2.0 percent) for the remainder of the

narios. But for now, we view the greatest

forecast.

uncertainty in the US economy to be that generated within the nation¡¯s borders.

3

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