what’s happening in the economy? · inverts – meaning short-term interest rates are higher than...
TRANSCRIPT
What’s Happening in the Economy?
Lucas PuenteLead Economist at ThumbtackApril 23, 2019
Will We Have a Recession in the Next 12 Months?
The Yield Curve as a Recession Predictor
“When the yield curve inverts – meaning short-term interest rates are higher than long-term rates for at least a full quarter – recession occurs within 12-18 months.”
The Yield Curve: Flashing Red?
Reasons for Optimism
“Economic fluctuations don’t follow a regular pattern and expansions don’t simply die of old age. Something has to knock us away from full employment… right now… the US economy appears to be relatively stable.”
-Christina Romer, former CEA Chair
The Yield Curve Today
Fed is Pausing Interest Rate Hikes
The Stock Market is Bouncing Back
Continued Strength in Labor Markets
Continued Strength in Labor Markets
Continued Strength in Labor Markets
Housing Market Continues Rebound
Household Debt at Sustainable Level
Delinquency Rate on Consumer Loans
Positive Small Business Sentiment
Stronger Expectations of GDP Growth
GDP Growth is Expected to Continue
Forecasters: Recession Unlikely in 2019
“I’m not as worried about a recession as some of my colleagues in the private sector. I still see the probability of a recession this year or next year as being not elevated relative to any year.”-New York Fed President John Williams
Source Probability of Recession in the Next Year
Goldman Sachs Investment Research
10%
National Association for Business Economics
20%
Deutsche Bank Research 20%
Reasons for Short-Term Pessimism
Weakening Consumer Sentiment
Policy Uncertainty
! Ongoing trade negotiations with China! Politicization of the Fed! Brexit: deal or no deal?! US-Mexico border status! Funding the government! Lifting the debt ceiling
Reasons for Longer-Term Pessimism
Economic Growth is Not Uniform
Declining Geographic Mobility
Fewer New Businesses Are Being Started
Slow Productivity Growth
Economic Mobility Is Declining
Ability to Fight the Next Recession
! Diminished fiscal capacity post-tax cuts means that austerity is more likely in the next recession
! Political consensus needed for fiscal stimulus seems unachievable in current political climate
! Monetary policy is already “loose” - how much more can be done?
