GRAND RAPIDS — Grand Valley State University economist Paul Isely still believes the U.S. economy could dip into a recession within a year, although West Michigan is likely to experience a “soft landing.”
Isely, professor of economics and associate dean at GVSU’s Seidman College of Business, two years ago started predicting a higher possibility of a U.S. economic downturn that would begin in late 2019 or early 2020. Isely continues to hold that view, as economic growth eases and key indicators rise of a possible recession.
“I’m talking the probability goes up this year. I’m talking that it will happen by the end of this year, but we’re really looking at the second half of ’19, the first half of 2020 is the most probable range,” said Isely, who was scheduled to present his outlook today at the annual Colliers International West Michigan Economic and Commercial Real Estate Forecast event.
Isely specifically cites the U.S. economy in late 2017 passing the potential gross domestic product — or the maximum level of output that can be sustained for a lengthy period — that has historically been an indicator of a recession within two years. That’s coupled with a partial onset at the end of 2018 of an inverted yield curve, and wage growth in a tight labor market that outpaces productivity gains.
“For businesses to grow, we need people, capital and money, and all three are in short supply,” said Isely, who predicts Real GDP growth in the “2 percent range” for all of 2019 and a “little lower” in the second half of the year.
Isely also points to a December Duke University survey of global chief financial officers in which nearly half of respondents believe the U.S. economy will move into recession by the end of 2019. More than eight in 10 CFOs believe that a recession will begin by the end of 2020.
“If they actually believe a recession is happening this year, they’re going to cut back on investment, they’re going to change their strategies, and that will guarantee that that recession happens a little early,” said Isely, who sees a short and shallow recession similar to what occurred in 1991.
In Comerica Inc.’s latest outlook for the U.S. economy, Chief Economist Robert Dye predicts Real GDP growth of 2.8 percent for all of 2019, off slightly from the expected 2.9 percent for last year.
This year should start with 2.4 percent Real GDP growth, the same rate Dye predicts nationally for the fourth quarter.
However, the Comerica outlook issued in December does state that “the list of downside risk factors for the U.S. economy has grown appreciably in recent months.” So has the risk of a recession longer term — from 22 percent within six months to 30 percent within a year, followed by 50 percent in two years and 60 percent within three years.
Locally, West Michigan’s economy will continue to grow during 2019, although at a slower rate, Isely said.
“The discussion that’s going be had as we get into this first quarter of 2019 will be a question of is it going to be a hard landing or is it going to be a soft landing? The data is still a little thin, but it looks like in West Michigan, there’s a good chance it will be a soft landing,” Isely said. “We’re in better shape here.”
While 212 local business executives surveyed in November and December by GVSU still expect increased sales and profitability in 2019, a business confidence index declined for the first time since the Great Recession, to 78.6 percent for this year from 80.8 percent last year.
Isely projects employment in Kent, Ottawa, Muskegon and Allegan counties to grow by 1.1 percent to 1.5 percent during 2019, a rate that’s consistent with 2018 and will accelerate wage growth. Survey responses led to an outlook for sales of 2.7 percent to 3.1 percent, a slowdown from the past few years.
“Do we expect things to slow down compared to last year? Yes. Do we expect that we’re going to drive off a cliff? No,” Isely said. “We have a much smaller group of fast-running companies right now. They’re much more cautious about their expectation and that expectation is more moderate than it was last year.”
The automotive industry also will continue to ease in 2019, he said.
The office furniture industry came off its peak in mid-2018 and “has been slowing down a little bit,” Isely said.
“What we’re seeing right now is that uncertainty in investment by firms is leading them to be more cautious in investing in goods for their business. That negatively affects the office furniture industry,” he said.