Supportive monetary policy allays some fears of recession, but risks remain elevated.
Panelists for Wolters Kluwer’s Blue Chip Economic Indicators are increasingly worried about a recession. The panelists indicated in the September issue that though the Federal Reserve’s monetary policy remains supportive, economic growth expectations are wrought with uncertainty, particularly over international trade issues and economic conditions abroad.
The average of panelists’ probability estimates for a 2020 recession rose to 38.3 percent, up from 36.6 percent last month, while the average of the probability estimates of the ten most pessimistic panelists has increased from 52 percent to 56 percent.
96 percent of Blue Chip participants look for a 25-basis-point reduction in the federal funds rate target at the conclusion of the September 17-18 FOMC meeting. The consensus expectation is that by year-end, the funds rate would be 1.70 percent, implying one additional cut at the October 29-30 meeting (54 percent of panelists) or the December 10-11 meeting (23 percent of panelists).
"Expectations of additional rate cuts by the Federal Reserve Board allay some fears of a recession but the risks remain elevated," said Haver Analytics’ Joseph Aguinaldo, executive editor of Wolters Kluwer’s Blue Chip Economic Indicators. "The Blue Chip panelists rank trade disputes as the primary source of risk to growth with slow growth in China and Europe ranked second. Sluggish corporate profits also worry them. When asked to cite examples of late cycle imbalances, several participants named corporate debt."
Other consensus findings from the September issue of Wolters Kluwer’s Blue Chip Economic Indicators survey include:
- The consensus for GDP growth this year is now estimated at 2.3 percent and 1.8 percent in 2020.
- The Blue Chip panel forecasts just 2.9 percent growth in non-residential fixed investment this year after the corporate-tax-cut-boosted 6.4 percent last year, with a further slowing to 1.8 percent in 2020.
- Consumers seem to be a source of stability for the U.S. economy. Consumer spending is forecast to grow 2.6 percent this year, down slightly from 3.0 percent in 2018.
- Disposable personal income growth is estimated at 3.0 percent this year, down from 4.0 percent in 2018, but up from 2.8 percent in August’s survey. For 2020, the panel estimates a 2.0 percent increase, marginally less than the August 2.1 percent forecast.
- The unemployment rate is seen dipping from the recent 3.7 percent to 3.6 percent in Q4 this year and Q1 next year, and then rising slightly to 3.8 percent by late in 2020. This implies that the labor market will remain relatively tight throughout the forecast horizon.
About Wolters Kluwer’s Blue Chip Economic Indicators
Established in 1976, Wolters Kluwer’s Blue Chip Economic Indicators has become synonymous with the latest in expert opinion on the future performance of the U.S. economy by presenting the forecasts of 50 economists from the nation’s largest and most respected manufacturers, banks, insurance companies, and brokerage firms. The newsletter compiles the experts’ individual and combined forecasts for the current and following year for variables including, but not limited to, real GDP, consumer price index, industrial production, real disposable personal income, pre-tax corporate profits, unemployment rates and real net exports.
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