A clock is ticking on the current U.S. economic expansion, the second longest on record, but three economists who delivered their economic forecasts for 2019 expect the good times will continue through the year – albeit at a more moderate pace.
“I’ve been asked by many people, ‘Will the recovery ever end?’” said Richard Wobbekind, director of the Business Research Division and associate professor at the Leeds School of Business at the University of Colorado Boulder. “What’s the elephant in the room? It’s the next recession.”
Wobbekind, along with two other economic leaders, looked into their crystal balls Tuesday to deliver their economic expectations for 2019. The two other speakers were Robert “Tino” Sonora, associate director of the Bureau of Business and Economic Research and research professor at the College of Business Administration at the University of Montana, who recently left Fort Lewis College; and Tim Quinlan, a vice president and economist with Wells Fargo Securities in Charlotte, North Carolina.
Their presentations came before about 100 people at the 27th annual Southwest Economic Outlook held at the Community Concert Hall at FLC.
At the moment, the U.S. economy is in the middle of the second longest expansion in history. Only the economic cycle of the 1990s was longer, fueled in part by the internet technology boom during that decade. If the current economic expansion, which began in June 2009, continues through July, it will have surpassed the 1990s as the longest on record.
“Certainly, a recession is out there as something in the background, but currently, Colorado is moving right along, doing great as a state in comparison to the rest of the country,” Wobbekind said.
He said Business Research Division economists at the end of 2017 anticipated flat or decreased job growth in Colorado in 2018, but instead, the state added 65,000 jobs for the year, even more than the 56,200 jobs added in 2017.
At the end of 2017, employers were telling researchers at CU they were having difficulty filling open positions. But Colorado continued to attract new residents from around the country despite high housing and rental costs, Wobbekind said.
In addition, people not yet of retirement age who had been “sitting on the sidelines” not participating in the labor force once again began searching for and finding jobs.
“A lot of people doubted that Colorado would have one of the highest labor-participation rates given legalized marijuana and its reputation for ski bums,” Wobbekind said.
In reality, the Centennial State has the third highest labor-participation rate in the country at 69.1 percent, he said.
Building permits are up along the Front Range, a good thing, he said, as that indicates the double-digit annual rent increases in the Denver-metro area would likely be easing, making it easier for workers to relocate to the Mile High City.
In fact, the most recent rent increases along the Front Range are now running in the low single digits, still above the rate of wage increases but far better than two or three years ago when rent increases were running in double digits, he said.
Quinlan agreed a recession in 2019 remains unlikely despite the length of the current expansion.
Only an “exogenous shock,” such as the trade war extending for six months or longer or war with North Korea, would likely tip the economy into a recession, he said.
In general, he said President Donald Trump’s imposition of tariffs creates a drag on the economy, but he added: “I don’t expect a trade war alone to bring the U.S. economy to its knees.”
However, he added, Federal Reserve interest rate hikes, import tariffs and decreasing economic benefits from the Tax Cuts and Jobs Act of 2017 all will contribute to more moderate growth in 2019.
As the year starts, Quinlan said, he expects the Fed to raise rates only two times in 2019 as opposed to the four rate increases most economists had expected for 2019 as recently as Thanksgiving.
A worrisome aspect of the 2017 tax cuts, Quinlan said, is the deficits they are creating in the federal budget.
By the end of the 1990s expansion, the federal government was seeing surplus revenues. However, despite the current expansion, he said the federal government is likely to run a $1 trillion deficit in 2019, similar to the $1.4 trillion deficit in 2009 in the midst of the Great Recession.
“God help us when the next recession happens. What will we be able to do?” Quinlan said.
Sonora said continued economic woes in San Juan County, New Mexico, and the bust in the natural gas patch in the San Juan Basin remain drags on La Plata County’s economy.
But he, too, doubted a recession is on the horizon.
Total jobs in San Juan County remain fewer than those at the start of the Great Recession, he said, but the total number of jobs in La Plata County in 2016 exceeded the 2008 count.
“San Juan County continues to be less robust, and that is a potential drag on (La Plata County’s) economy,” he said.
Increasing interest rates in 2019, Sonora said, would only slightly nick the housing market in La Plata County, which receives support from retirees moving in and second homeowners, and both groups are less sensitive to interest rate hikes than first-time home buyers.