February 2020 U.S. Economic Outlook

Robert A. Dye, Ph.D.


Daniel Sanabria

Stock Market

Niels Bohr, Coronavirus and Airplanes

    Prediction is very difficult, especially if its about the future. Physicist Niels Bohr is credited with saying that. Due to two developing events, Bohr’s quote is especially apt for this month’s U.S. economic forecast. The spreading coronavirus pandemic and the temporary cessation of production of the 737 Max airliner at Boeing Corporation are two major economic events with a great deal of uncertainty surrounding them. In some ways the two events are mirror images of each other. The coronavirus pandemic originated outside the U.S, it is very difficult to quantify in terms of economic impact and it is of uncertain duration. Whereas, the production shutdown at Boeing originated within the U.S., is easier to quantify and may be limited to less than half a year.

    We assume that the quarantines and fear in China will have a significant negative impact on China’s gross domestic product in 2020. Perhaps shaving 200 basis points off their near 6-percent official real GDP growth rate. We assume that other Asian economies that are tightly linked to China through global supply chains will also feel the drag, even if their absolute or relative numbers of coronavirus cases are much smaller than China’s. Further, we assume that the duration of the pandemic event will be less than six months.

    The economic drag from the coronavirus outbreak reverses our previous assumption that China had turned the corner after weaker growth and signs of mild economic stress through early-to-mid 2019. Certainly there are U.S. companies that are already feeling the drag from reduced demand in China, reduced production in China, and reduced travel and tourism globally. However, the U.S economy as a whole is somewhat insulated from drag from the coronavirus outbreak, as long as the epidemic remains mostly confined to Asia.

    Boeing Corporation is credited with adding $70 billion annually to the state of Washington. Its supply chains extend far beyond the border of Washington state. The company booked a record $101 billion in revenue in 2018. It currently has over 400 undelivered 737 Max airliners parked, worth about $130 million each. In addition to their problems with the 737 Max, some orders for the 777 have been cancelled recently.

    We have adjusted several levers in our U.S. macroeconomic model to reflect the dual drags from the coronavirus outbreak and from Boeing Corporation. First, we have lowered our assumption for rest-of-world GDP growth in 2020. Second, we have extended the decline in business fixed investment, visible from 2019Q2 through 2019Q4, into 2020Q1. Third, we have extended the drag from reduced inventory accumulation into 2020Q1. Fourth, we assume that the export of U.S. goods declines through the first half of 2020. Likewise, we assume that goods imports are also weak in 2020 due to supply chain effects. The drag on exports dominates, and trade is assumed to be a drag on U.S. GDP in 2020, despite new trade agreements.

    Fortunately for the U.S. economy, job creation was again strong in January when 225,000 net new payroll jobs were added. We expect the strong foundation for the U.S. consumer sector to keep overall economic momentum positive for the U.S. this year. We look for about 1.4 percent real GDP growth (annualized) in 2020Q1, gradually firming to about 2.3 percent by the fourth quarter of this year.

    At the recent Federal Open Market Committee meeting over January 28/29, the Fed surprised no one by keeping the benchmark fed funds rate range unchanged at 1.50-1.75 percent. Beginning late last year, Fed officials stated that they would like to keep their policy rate unchanged as long as their outlook for the U.S. economy remains materially unchanged. We may find out what the word “materially” means to the Fed soon. We believe that risks to the U.S. economy in the first half of 2020 are weighted toward the downside. Therefore, we will keep one 25 basis point cut to the fed funds rate in our forecast for this year, coming in June.


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February 10, 2020
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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