Economic Perspective: Why Have Recession Worries Eased?

MARY WALDEN:

“Today’s programs asks, ‘Why have recession worries eased?’ Mike, six months ago, many economy watchers were very pessimistic about the economy. Several suggested a recession would occur by the end of 2019, or certainly in 2020. Now with the beginning of 2020, we’re not hearing those same warnings. What happened?”

MIKE WALDEN:

“Well I think several things combined to ease the concerns about an impending recession. First of all, businesses continued to hire. And when they hire more people that puts more income into consumers pockets, consumers account for 70 percent of all spending in the economy. So if consumers have more income they’re going to spend more, and that’s going to generate economic growth.”

“Secondly, we do have an initial trade deal with China. It’s not the comprehensive deal that we think ultimately we want, but it is a step in the right direction. We also have a deal that will be soon signed by the President for the new NAFTA, the USMCA. So that’s created some optimism on the trade front.”

“Thirdly, Congress is going to continue to be able to work. They have passed a spending bill that will avoid a government shutdown this year of 2020. And fourthly, there are indicators that we do see that have lagged, things like consumer confidence and homesales, but they have not sunk.”

“And then lastly, I think the stock market. I think the stock market has continued to go up. Now that’s a day-to-day thing, but over the last several months we’ve seen a growing stock market. That creates wealth for people. People can turn that wealth into spending. So I think combined we’re starting 2020 on a much more optimistic level for the economy than many thought would be the case.”

Mike Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.