LIMA — Fears of a coming recession — triggered earlier this year when short-term interest rates temporarily surpassed long-term interest rates, an event which has historically preceded a recession — may not come to fruition quite yet if consumer confidence remains high in 2020, according to financial analyst Robert Morgan.
“Consumers are significantly more confident than business people about what’s going to happen next year,” said Morgan, a senior consultant with ProBank Austin in Toledo, who shared his economic forecast for 2020 at the Shawnee Country Club on Wednesday.
Morgan predicts consumer spending will continue to grow by 2.5% to 3% in 2020.
But political instability and uncertainty — driven primarily by the House of Representative’s impeachment inquiry into President Donald J. Trump and ongoing trade negotiations between the U.S. and China — could complicate things.
“The key is going to be whether the consumer, which is 70% of our economy, continues to be confident and continues to increase spending, propelling economic growth through next year,” he said. “That’s going to be largely a function of the labor market, with low unemployment and significant number of job openings that are still unfilled in this country.
“Is the consumer believing that their incomes are going to rise and that they can continue to increase spending and fuel additional economic growth?”
The trade war has taken its toll on the U.S. economy — most notably with the decline in U.S. industrial activity and agricultural exports — and may eventually cool consumer spending.
But Morgan said inflation hasn’t moved much, despite the tariffs and tight labor market.
“One would have expected companies to raise prices because of an increase cost of the tariffs. But in fact, companies like Walmart and others appear to have been either absorbing the tariffs and allowing their margins to come down by not raising prices to cover that cost, or they are finding other supply chain areas outside of China to buy goods from,” he said. “Literally, two things you would have expected inflation to be much higher would be rising labor costs with a tight labor market and the tariffs, neither of which have driven inflation rates up by any meaningful amount.”
Reach Mackenzi Klemann at 567-242-0456.