The 2020 Economic Outlook Remains Modestly Cheery

A trader works on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., December 3, 2019. (Lucas Jackson/Reuters)

Every now and then I look through business magazines, just to see how the endless circus of our politics appears to those who worry more about profits and growth and who aren’t as focused on the latest Washington controversies. Kiplinger’s Personal Finance thinks the coming year will be a good, but not great, year for the American economy.

For the U.S. economy overall, Kiplinger expects growth of 1.8% in 2020, compared with an expected 2.3% in 2019 and 2.9% in 2018. Business spending in the U.S. has been subdued by uncertainty about a trade deal, the fallout from Brexit and angst over the presidential election. But with unemployment at decades-long lows, consumers, who account for the bulk of the U.S. economy, remain a strong underpinning. So does the Federal Reserve, which has cut short-term rates three times since June.

Kiplinger expects the unemployment rate to inch up to 3.8% in 2020 from 3.6% in 2019, and the Fed to cut rates at least once early in 2020. “The economy is in a tug-of-war between geopolitical risk and the underlying resilience of the American household, plus the Fed,” says Mike Pyle, global chief investment strategist at investment giant BlackRock. He is betting on the side that has U.S. consumers and central bankers on it.

Kiplinger elaborates, “Monthly job growth in 2020 is likely to average 150,000 jobs per month, down from 180,000 in 2019 and 223,000 in 2018. Partly, that is because there are fewer available workers to hire, given the low unemployment rate. But the smaller gains will also signal that the economy is slowing down to a more moderate growth rate.” They also predict a Dow Jones industrial average of around the 28,500 mark.

In most of these analyses, one of the factors limiting U.S. economic growth is slowing exports and the trade wars and tariffs. For what it’s worth, those factors may be less of a factor in the coming year; we may be close to ratifying the U.S.-Mexico-Canada Trade Agreement, and there’s a modest “first step” deal with China.

In theory, an unemployment rate that goes up and a rate of GDP growth slowing would hurt President Trump’s chances for reelection. But the “bad news” in that Kiplinger forecast is really modest; the unemployment rate is currently 3.5 percent and has been below 4 percent for 18 of the past 20 months. If unemployment is at 3.8 percent in November 2020, that would mark nearly three straight years of unemployment below 4 percent, and it’s easy to picture a Trump reelection message that focuses extensively on that.

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In fact, the Washington Post noted yesterday:

While Trump is almost certain to fall short of his vow, the vast majority of economists now think the economy will grow around 2 percent next year, a rate solid enough to ensure unemployment stays near a half-century low of 3.5 percent. This could benefit Trump on the campaign trail, as no president since World War II has lost reelection when unemployment was below 7.4 percent.

The Democratic nominee is almost certain to run on some variation of, “Trump’s economic policies have failed us,” but the data in autumn 2020 may not be so cooperative.

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