SPOTLIGHT Q&A| VIEWPOINT
Penn State Economist Discusses Outlook for 2020 It’s hard to make predictions, especially when it comes to the economy. However, by examining statistics and trends, economists can get a better idea of the economic outlook for the region and the country. Here, Ken Louie, Ph.D., director of the Economic Research Institute of Erie (ERIE) and associate professor of economics at the Black School of Business at Penn State Erie, The Behrend College, shares some insights ahead of his Economic Forecast IMPACT Luncheon presentation on December 12 at the MBA Conference Center in Erie. Some economists are saying that we should expect slower economic growth, possibly even a recession, for the U.S. economy and global economy in 2020. What does your research show? By some measures, U.S. macroeconomic performance is still strong. For example, in September, the unemployment rate fell to 3.5 percent, the lowest level in half a century. Inflation has also remained low, with the Consumer Price Index increasing by a modest 1.7 percent in September compared to a year ago. The fact that the economy has been operating at “full employment” without generating higher inflation is a positive sign, indicating that further economic growth is possible in 2020. At the same time, however, there are some signs that economic growth may be slowing. Recent statistics from the Federal Reserve indicate that U.S. industrial production was 0.1-percent lower in September compared to a year ago. Industrial capacity utilization also decreased 0.4 percentage point in September to 77.5 percent, which is 2.3 percentage points below its longrun (1972–2018) average. Growth in
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DECEMBER 2019 • mbabizmag.com
U.S. real GDP has already slowed to 2 percent in the second quarter, down from 3.1 percent in the first quarter. The Fed’s most recent projections indicate that U.S. growth will remain at 2 percent in 2020, but fall to 1.9 percent in 2021 and to 1.8 percent in 2022. In this context, the Fed pushed interest rates lower for the second time this year in September. There are also signs of potential weakness in the global economy. The International Monetary Fund (IMF) recently lowered its forecasts for global growth in 2019 to 3 percent, the lowest rate since the 2008-2009 financial crisis. While the IMF expects global growth to rebound to 3.4 percent in 2020, this represents a 0.2 percentage point downward revision compared with earlier forecasts made in April. It’s too early to tell if these are all signals of an impending recession. Whether the U.S. economy and the global economy will enter into recession will depend on many factors that are yet to be played out fully, including the likelihood of renewed trade tensions between the United
States and China, the repercussions emanating from a final Brexit agreement, changing consumer and business sentiment both in the United States and abroad, and government policies around the world. Even the “inverted yield curve,” which has been a reliable predictor of U.S. recessions in the post WWII period, has been giving mixed signals. After inverting earlier in the year, the yield curve has reverted back to “normal” in October. What about regional economic outlook? How does it compare with the state and nation? Unfortunately, the Erie regional economy experienced a reduction in real (inflation-adjusted) output by 0.8 percent between 2016 and 2017, the most recent year for which data are available. During the same period, real output grew by 1.7 percent in Pennsylvania and by 2.2 percent in the nation as a whole. The good news is that, on a seasonally-adjusted basis, nonfarm employment in Erie has increased over the past year, albeit at a very modest pace of 0.5 percent (700 jobs). During the same period, nonfarm
