CUNA economists continue to believe the U.S. economy will slow moderately this year, but conditions are becoming more uncertain and could worsen quickly.
The mixed messages were contained in CUNA’s monthly “Economic Update.” Senior economist Jordan van Rijn, who gave this month’s 15-minute video presentation, tackled the question of when CUNA thinks the next recession will occur.
Fast-forward 14 minutes into the presentation, and he says CUNA is sticking with its previous forecast that U.S. economic growth will slow from 3.1% in 2018 to 2.3% this year.
Then he closed by saying:
“We would not be surprised if growth falls even further, especially if trade tensions continue and we experience another prolonged government shutdown,” van Rijn said. “Downside risks and uncertainties are both much greater than they’ve been in the past, which always makes the job of forecasting challenging.”
“For credit unions, this means you’ll have to be vigilant, and be sure that you’re prepared for any possible downturns in the economy, and manage effectively the rising interest rate environment,” van Rijn said.
The windup to the conclusion is a tour through yield curves nearing inversions, corporate debt bloating, stocks indices diving and consumer confidence wavering. There are also excursions into age-old chicken-and-egg questions. One is whether saying bad things about the economy causes the economy to do bad things. The jury is out.
Another is whether inverted indices are merely a highly reliable predictor of recessions or a cause of them. Van Rijn said research from the St. Louis Fed suggests the very appearance of this bad omen causes lenders to tighten standards, choking off economic growth.
In which case, with short-term and long-term rates nearing a convergence, lenders might be preparing to wring the neck of the economy.
Other forebodings include:
- 2018 was the worst year for stocks since the financial crisis with all major indices falling 4% or more during the year. “The increased volatility reflects the uncertainty in the markets and may foretell more instability to come,” van Rijn said.
- Growth in other parts of the world is also slowing, especially China and Europe. “Slower global growth means less demand for U.S. goods and services, which puts another drag on U.S. growth come,” van Rijn said.
- NAFCU Chief Economist Curt Long said December retail sales “showed a staggering decline in consumer spending during the heart of the holiday shopping season.”
Another threat to economic growth has been an overactive Fed, van Rijn said. Past recessions have been preceded by sharp increases in the federal funds rate. This time, recent signals from the open market committee indicate that rates will be raised slowly – probably to 2.5% to 3. 5% this year.
“The Fed seems to be doing a pretty good job of managing interest rates, raising them at a much more gradual pace than in the past,” he said.
Van Rijn also found hope in the economy adding a higher-than-expected 304,000 jobs in January, despite the partial federal government shutdown, and wages growing.
“With such a strong labor market and low unemployment, we still feel the economic fundamentals are quite strong,” he said.
But NAFCU’s Long said the December retail sales report was a great concern, with declines across the board. Department store sales fell 3.3%, and sales by nonstore retailers, which include online companies like Amazon, fell 3.9%.
“The report is sure to grab the attention of policymakers, as the combined impact of tariffs, the government shutdown, and tighter monetary policy appeared to take a toll,” Long said.
“One should not make too much of one report. But the general mood at the moment is certainly fraught, and it is hard to shake the notion that the only thing keeping the economy afloat is the performance of the labor market.”