Is the US Economy Headed for a Recession?

US Dollar Note

With increasing trade tension with China, the rise of new protectionism across major markets, dismal growth for the current quarter, as well as declining confidence in the domestic consumer market, many alarmists are claiming that the US economy is headed for a recession. However, growth forecasts from leading economists paint a less negative image of the US economy. While real growth would slow down, the US would still avoid a recession with a 2% GDP growth.

Why the US Would Avoid a Recession

To avoid a recession next year, three things need to be accounted for, namely retaining investor confidence, increased household spending, and a cool down in the global trade war. Since all three factors are interconnected, the increase in trade war had an impact on decreasing investor confidence and led to a slowdown in consumer spending. Not surprisingly, this year, 90% of the world economies experienced a slower growth compared to 2018.

However, thanks to stronger projected growth of 4.6% in emerging markets like Brazil, Russia, Mexico, and India, as well as recent developments hinting at the US and China moving closer to a trade deal, indicates that while the trends towards a slowdown will continue, the impact would not be as severe as some economic pundits have previously expected.

While consumer confidence is likely to remain low next year, real consumer spending is increasing at a rate of almost 3%, and debt levels relative to income has been lowest on record in the past 40 years.

Impact on the Job Market

Even as real growth in GDP slows down, the US job market is likely to continue along with the trend it experienced in the past few years under the Trump administration. Unemployment rates are a 50 year low this year and barring any major political changes, are likely to decrease further by next year, mostly thanks to rising consumer spending.

Wages are also expected to see an estimated increase of 3.5% in 2020. However, this growth in income will not be evenly distributed. As has been the case for the past five decades, for 2020, most of the income gains will be experienced by high-income households while the poorest earners will see little or no meaningful rise in wages.

Job trends are likely to follow what they have been this year with automation and outsourcing stifling growth in the low-skill sector while demand for highly skilled individuals would see a rise. The remote workplace phenomena will likely gain a greater pace and as well as greater diversity in hiring.

It is also possible that employers would likely brace for potential risk of a slowdown in the economy by downsizing and reducing recruitment. If this happens, it is likely to offset job gains attributed to previously mentioned factors.

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