April 2019 U.S. Economic Outlook

Robert A. Dye, Ph.D.


Daniel Sanabria

Federal Reserve Building

Our job is to remind everyone why they call economics “the dismal science.” So as downside risks to the U.S. economy increased through the end of 2018 and into

Our job is to remind everyone why they call economics “the dismal science.” So as downside risks to the U.S. economy increased through the end of 2018 and into early 2019, we felt compelled to incorporate them in our U.S. economic forecast and to communicate about them. As a result, our real GDP forecast for the U.S. shows growth slowing significantly in 2020 and beyond. We have also increased our subjective probabilities of recession to show that there is a meaningful danger to this very long economic expansion lurking nearby. We hope that the downside risk story is no longer headline news, but something that is recognized in your planning process.

While we have covered the downside risk story for the U.S. economy in recent editions. There are two other important alternative stories. One alternative story describes an ongoing weak-to-moderate economic expansion. A key element of this potential outcome is the stabilizing power of the U.S. household sector. Wages and salaries account for about half of U.S. personal income. We know that the employment rate (the inverse of the unemployment rate) now stands at 96.2 percent. There is always some frictional unemployment in the system as available labor seeks its best opportunity, but it is fair to say that hiring conditions remain very favorable and almost everyone who wants a job has a job. Because of the general scarcity of available labor, wages in most occupations are being bid up. The yearly rate of change of average hourly earnings was 3.4 percent in February, well above the yearly change in the Consumer Price Index of 1.5 percent for the month. So most households are seeing real gains in earnings. At the same time homeowners’ equity in their homes is increasing and the personal saving rate remains elevated well above pre-recession rates. Overall consumer debt remains manageable. The household financial obligations ratio, debt payments as a percent of income, is still well below the historical average from 1980 through 2010.

There is also an upside story waiting to unfold if conditions allow. A resolution to the U.S./China trade war could be a catalyst for improved business confidence and investment. A long pause, or even a rate cut by the Federal Reserve would keep a lid on the cost of capital for businesses. The recent dip in home mortgage rates could provide a reset for the housing market. If earnings remain strong and corporate profits stay robust, then equity markets could stage another rally, generating significant wealth.

Our monthly U.S. forecast seeks to balance the upside and downside risk factors for the U.S. economy and show what we believe is the most likely near-term outcome. We expect to see ongoing economic growth this year after a very weak first quarter. We expect growth to moderate toward the end of this year and into early 2020 as the current economic expansion establishes a new record duration of more than 120 months.

The low-growth economy beyond 2019 will be vulnerable to downdrafts and may fall into technical recession without replaying the catastrophic cliff dive of 2008-2009. Barring a dramatic correction in global debt markets, the next recession could look more like the on-again-off-again pattern of 2001 than the classic V-shaped recession pattern.

We saw a bit of this this zag-zag pattern in GDP growth through 2011 and again in the second half of 2012 into early 2013. A revolution in oil field technology spurred a sustained peak in drilling activity, well servicing and investment in production and distribution systems that provided enough of a boost to business investment that we avoided a follow-on recession after the Great Recession. Without the Shale Gale we might have fallen into the Recession of 2011/2012. The current expansion cycle would then be dated much differently, with perhaps more potential to continue.

For a PDF version of this report, click here: April 2019 U.S. Economic Outlook.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although the information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

April 9, 2019
Robert A. Dye, Ph.D., Senior Vice President and Chief Economist at Comerica Bank

Robert A. Dye, Ph.D.

Senior Vice President and Chief Economist
Daniel Sanabria, Senior Economist at Comerica Bank

Daniel Sanabria

Senior Economist

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