Business

Bank economists forecast slower growth in 2019

A group of leading bank economists is projecting slower but steady economic growth for the U.S. in 2019 amid global fears of an economic slowdown.

The economic advisory committee of the American Bankers Association (ABA) on Wednesday released its forecast for 2019 and 2020. The group of 15 economists from major U.S. and Canadian banks projected GDP growth and monthly job gains would slow this year with a 20 percent chance of a recession starting in 2019.

Robert Dye, chief economist at Comerica Bank and the committee’s chairman, said a strong labor market, solid consumer spending and accelerating wage growth should keep the economy expanding through 2019.

{mosads}“Given the tight labor market, firms will be forced to pay up to hire,” Dye said in a statement. “More jobs and rising pay should keep confidence elevated and consumer spending healthy.”

But Dye also cited other “threats” to the U.S. economy, including “cooling global growth, recent financial market volatility, ongoing trade tensions and political uncertainty,” that could dampen the expansion.

The economists for ABA, the largest lobbying group for U.S. banks, project GDP growth to slow to 2.1 percent in 2019 from 3.1 percent in 2018. The panel also projected average monthly jobs gains to fall to 158,000 this year from 204,000 last year.

Even so, the ABA committee expects slower levels of expansion and hiring to support faster wage growth and lower unemployment in 2019.

The panel projects private hourly earnings to increase 3.4 percent in this year from 3.1 percent in 2018 and the jobless rate to fall 0.2 percentage points to 3.5 percent. That would be the lowest level of U.S. unemployment since 1959.

The recovery from the 2008 recession is approaching the record for the U.S.’s longest economic expansion. But analysts say that slowing global growth and myriad political issues are threatening to end that streak within the next six to 24 months.

The ABA panel is forecasting a 20 percent chance of recession in 2019 and a 35 percent chance in 2020, the year of the next presidential election. The committee projects a 1.7 percent GDP growth rate in 2020 if an expansion doesn’t begin.

ABA economists cited “trade, fiscal, and global policy uncertainty” as the biggest threat to continued growth, highlighting President Trump’s trade disputes with China, Canada, Mexico and the European Union.

Trump has imposed tariffs on hundreds of billions of dollars worth of foreign steel, aluminum and Chinese goods imported to the U.S. The trade battles have taken a heavy toll on China’s economy while U.S. manufacturers, ranchers and farmers struggle to stay afloat with lower global demand for their goods.

Lagging global growth and a lack of progress on U.S.-China trade talks has complicated the otherwise strong American economic picture. A bloody second half of 2018 on Wall Street also fed panic about the state of the global economy.

Federal Reserve officials, including Chairman Jerome Powell, have stressed that the central bank will be flexible in its efforts to raise rates toward historically neutral levels. That process has invoked the rage of Trump, who has blasted the Fed for pulling stimulus from the economy.

The persistence of low inflation is also likely to slow down the Fed’s plans to hike rates, Dye said.

“The Federal Reserve is likely to achieve a soft landing for this economy with healthy labor markets and inflation holding near 2 percent,” said Dye. “Therefore, the Fed is likely to slow the cadence of rate hikes this year, and we expect no more than two 25-basis point increases.”

ABA economists expect the Fed to hike rates no more than twice this year, which is in line with the central bank’s own projections. Five of the 15 economists on the ABA panel recommended the Fed hike twice next year to a target range of 2.75 to 3 percent, three suggested one hike and two said rates should be kept steady.

While most of the ABA economists recommend the Fed hold rates at 2.5 to 3 percent in 2020, two economists suggested cutting rates.