With the United States in its longest economic expansion ever, worry about when the next recession hits and how it might harm Southwest Colorado seemed to be a shadow looming over the 28th annual Southwest Economic Outlook.
[image,3,mugshot]“Fortunately, expansions don’t die from old age, and while this expansion is the record longest, it’s also been one of the weakest,” said Sarah House, director and senior economist with Wells Fargo Securities.
The Economic Outlook, held Thursday in the Student Union Ballroom at Fort Lewis College, brought together Richard Wobbekind, executive director of the Business Research Division at the Leeds School of Business at the University of Colorado Boulder; Laura Lewis Marchino, executive director of the Region 9 Economic Development District of Southwest Colorado; and House, Wells Fargo’s top economist, to examine the economic tea leaves heading into a new year.
Both House and Wobbekind see continued, but slowing economic growth in 2020, with a recession unlikely in the next 12 months.
“We’re calling for a growing, but slowing economy, a nonrecession scenario,” Wobbekind told several hundred people who gathered for the event.
Last year, he said he recorded 51,000 new jobs created in Colorado, and this year he sees an increase of 40,000 new jobs, consistent with his expectation for the economy to remain strong albeit growing more slowly than in 2019.
House examined three factors some economic observers suggest might lead to the next economic dry spell – an inversion of the yield curve, the national election and increasing debt burdens on corporations and the federal government.
However, House said none of those factors seem likely to be strong enough to throw the economy into reverse.
The yield curve inversion – when short-term interest rates on debt exceed the rates for long-term debt – is a gauge economists watch as an early indicator of an oncoming recession. House said the yield curve indeed inverted several times in 2019, the first occurrence being Aug. 27.
But she cautioned that the gauge does not necessarily coincide with a recession 100% of the time.
“I think there’s reason, this time, to take it with caution considering that the Fed has been through quantitative easing and has been trying to push down rates, and so it doesn’t necessarily mean the same thing that it used to,” she said.
Despite the partisan political bickering – to be expected in presidential election years – House said economic contractions rarely occur during presidential elections. More typically, she said, presidential election years are associated with increased investments by businesses across the nation.
Growing corporate and federal debt are at historic highs compared with the size of the economy, but again, House said that valid non-recessionary reasons exist for that as well.
“You have to bear in mind that assets are also at an all-time high,” she said. “We’ve seen a lot of the debt held long term, locking in low-interest rates. So, with historically low rates, in some ways it makes sense for businesses to be taking out a little more debt at this time, given that it’s so cheap.”
House said mounting federal debt is unlikely to be dealt with anytime soon, and while it might eventually trigger a crisis, no one knows when.
The growing debt is on track to increase from 75% of annual gross domestic product to 95% of gross domestic product, she said. “So, when does this all fall apart? Well, hard to say. You know, if you look at Japan this could go on for a while.”
The most likely principal impact of the growing debt, she said, is when the next recession hits, the government will have fewer resources to devote to discretionary spending to stimulate the economy.
Marchino noted several “thumbs-up” factors that should aid Southwest Colorado’s economy in 2020:
New activity in logging to remove beetle-killed timber and to promote forest health.Strong support systems for entrepreneurs and small businesses.New creative districts to spur the arts in Durango, Ignacio, Silverton and Mancos.Innovate farm-to-table agricultural enterprises.A vibrant, attractive area that attracts people working from home, retirees and second homeowners.Marchino’s “thumbs-down” factors were:
An economy that continues to struggle in Farmington.Higher-than-average suicide rates in Southwest Colorado.A lack of drug treatment and mental health facilities.Higher health care costs compared with Colorado’s average.Gaps in telecommunication infrastructure.Problems of supply of affordable housing for wage workers.[email protected]