Will There Be A Recession in 2020, Or Not

Professional economists, some on the slightly left, forecast a recession in mid to late 2020. Here is their rationale. Labor shortages and cost increases in wages and imports will cause increasing inflation in 2019. That will cause the Fed to raise three times. The 10-year will rise to a level that housing and other development will be heavily impacted and continue a downward path. Leveraged loans, which are basically subordinated floating rate junk debt, will fall into default. The mortgage and shadow bank market will lose liquidity and freeze up. The stock market will decline further, thereby raising the cost of capital for public companies and losses to investors. Economic growth in the EU and other areas will continue to be weak. The fiscal stimulus of the tax cuts and budget deficits we now experience have added 1% to GDP in 2018 and will again in 2019, but by 2020 they will no longer provide the extra lift to the economy. Recession will then occur by mid-year 2020, just before the election. While all of this is a valid potential; scenario, there are other possible scenarios.

Despite the decline of the stock market, the US economy is still doing very well. Unemployment is likely to drop further to 3.6% or even 3.5% in the next couple of months. While wages are rising, they are not rising very fast, nor are they being pushed up due to inflation which remains only a little above 2%, while wages rise at 2.9%. The increase in wages is likely to increase, but it is unclear if it will be at much more than 3%. There is no good data on the increase in productivity, but there is evidence the introduction of much more technology has improved productivity at a faster rate than has been the case. Measuring productivity is acknowledged by economist to be more a guess than a fact. GDP in Q4 is likely to be 3%, and maybe better.