Exclusive: Economist Says U.S. Has ‘Less Room for Error’ in 2020

Richard Breen

Tuesday, December 10th, 2019

As the U.S. economic expansion continues its unprecedented length, there are mixed indicators of its health heading into 2020.

Is a recession imminent?

“Some people feel we’re due,” said Sarah House, a senior economist with Wells Fargo Securities in Charlotte.

House was in Columbia recently for the University of South Carolina’s annual Economic Outlook Conference.

“While it’s been the longest expansion on record, it’s also been the slowest,” House said. “There’s less room for error.”

That being said, she pointed out that expansions don’t simply die of old age.

“There has to be some type of imbalance in the economy,” she said. Either that or a shock from an event such as a trade war.

House said Wells Fargo doesn’t expect the U.S. and China to reach a trade deal any time soon.

Looking to 2020, she said Wells Fargo expects the U.S. gross domestic product to grow at a 1.5% rate for the next couple of quarters. The Bureau of Economic Analysis estimates that GDP grew 2.0% in the second quarter of this year and 2.1% in the third quarter.

“We do expect things to pick up in the second half of 2020,” House said.

Low inflation remains among the positive economic trends.

“Companies have absorbed this to some extent,” House said. “Bottom line, inflation remains pretty tame.”

Consumer prices rose by 1.8% for the 12 months ending October 2019, according to the Bureau of Labor Statistics.

Businesses continue to invest, House said, although the spending has shifted away from equipment and toward items such as software.

The labor force participation rate was 63.3% in October, down from 65.8% in February 2009, according to the BLS. Some of that shrinkage is due to retiring baby boomers. House said participation by adults age 25-54 is rising.

“We’re drawing workers back into the labor force,” she said.

Americans are also better managing their personal finances.

“You’re seeing the saving rate increase even as income has increased,” House said.

U.S. wage growth was 3.5 in October, according to the Federal Reserve Bank of Atlanta.

“We’re finally seeing wage growth outpace housing price increases,” House said.

While that’s good for the real estate market, another trend is holding down inventories of homes for sale.

“We’ve seen a long-term decline in mobility,” House said.

That can have other impacts on the economy.

“When people move, you tend to want to put your own spin on the house,” House said, leading to consumer spending with businesses such as furniture retailers.

Pending home sales were down 1.7% in October compared to the previous month but up 4.4% compared to October 2018, according to the National Association of Realtors. The inventory of homes for sale has been trending downward in 2019, according to the Federal Reserve Bank of St. Louis.

House said auto loan delinquencies are rising, but that may be due to more loans being issued to subprime borrowers.

Other types of borrowing drew more concern.

“Business and government debt is high and likely to exacerbate the next downturn,” House said.