Economic update: Recession risks on the rise

U.S. Growth

Our latest estimates continue to suggest that economic growth in the U.S. will weaken in the coming year while the risk of a recession remains elevated.  We expect growth to come in around 2.1% YoY in 2020, slightly weaker than our expectation of 2.2% for 2019.

International Growth

Globally, World GDP is likely to accelerate as emerging market economies (ex China) rebound from markedly low levels of growth in 2019.  We expect China’s economy to slow further in 2020 (5.8% YoY) as policymakers balance easy credit conditions with allowing market forces to curb certain lending excesses.  Growth in developed market economies is expected to remain soft in 2020 as weaker growth in China and the U.S. put downward pressure on eurozone (1.1% YoY) and Japanese (0.6% YoY) exports.

U.S. Employment

Incoming data show that labor market conditions remain weak and continue to deteriorate, as evidenced in the November double digit job opening decline.  These figures continue to support our expectation of a rise in employed workers (3.8% in 2020 vs. 3.7% in 2019) as nonfarm payrolls growth continues to slow and the number of people reporting full-time employment falls.

U.S. Inflation

Inflation is likely to remain soft as a decline in home prices through the first half of 2020 is offset by a rise in transportation costs off of 2019’s low base.  Core PCE is likely to fall further in 2020, led on by housing weakness.  Decelerating inflationary pressures coupled with slowing economic growth are likely to prompt two further rate cuts by the Fed in 2020.

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Figure 1: January economic outlook