WASHINGTON (AP) — In this high-profile election year, the U.S. economy boasts an unemployment rate that is near its lowest level in a half-century.
But economic growth has been slowing. And some economists say the expansion may be vulnerable to risks ranging from the U.S.-China trade war to China's deadly viral outbreak.
Gus Faucher
Q: Last year, the economy grew 2.3%. That was the slowest in three years, and it was down from 2.9% in 2018. What are you forecasting for this year?
A: We are forecasting 1.7% GDP growth for 2020. There are a few drags on the economy, such as soft business investment, and the positive impacts of the 2017 tax cuts have largely faded.
Q: Last year, the economy had to deal with a slowing global economy and the uncertainty created by President Donald Trump’s trade war. What are the risks now?
A: Although we have the Phase 1 trade deal between China and the United States, there are still some very thorny issues the two nations need to hash out. In addition, I think the coronavirus will cause a significant hit to China’s economy in early 2020 which will impact U.S. growth.
Q: The Federal Reserve cut rates three times last year after having raised them four times in 2018. What is the Fed likely to do this year?
A: I think we will see the Fed stay on hold. If we do see Fed action this year, we are more likely to see a rate cut rather than a rate increase.
Q: The economy is in the 11th year of an economic expansion. That is the longest in U.S. history. What is the risk of a recession?
A: The probability of a recession this year is about 30%. The most likely cause of a recession in either 2020 or 2021 would be some sort of external event — whether an intensification of the trade war, coronavirus, a global recession, something like that.
Q: What will the next recession look like?
A: Whenever it occurs, it is going to be a fairly mild recession. We simply don’t have the imbalances in the economy that we had heading into the 2007-2009 Great Recession, when we had huge problems in housing. The unemployment rate, which increased to 10% during the last recession, may go from 3.6% now to around 6%.
Q: Is this an economy that should favor a president running for re-election?
A: Since the expansion started in June 2009, we have had steady economic growth of between 2% and 3%, and we have seen a significant improvement in the labor market. The economy is in good shape right now.
