Morrison: Time to Talk About the ‘R’ Word?

Written by Tim Triplett

As of August, the U.S. economy had grown for 112 months in a row, the second longest growth streak in history. How much longer can that trend possibly continue? Is a recession inevitable? Not any time soon, predicts Lisa Morrison, Principal Economist for the CRU Group.

Speaking at the CRU North American Steel Conference this week in Chicago, Morrison noted that U.S. GDP has rebounded by 23 percent since the 2008-09 downturn. While that is certainly positive, it’s about half the recovery that occurred following the recession in the ‘90s. “So, maybe the current economy has more time to run,” she said.

The Fed’s moves to gradually inch up interest rates as a check on inflation should keep the economy from overheating, which generally leads to a correction. Both short- and long-term rates are moving in tandem, so there is no inversion of the yield curve that normally precedes a recession. So far, the economy has managed to absorb the interest rate hikes with little negative effect. “The rising interest rates don’t signal that we are moving into a recession anytime soon,” she said.

The employment level in the U.S. is extremely strong. Unemployment is near historical lows as employers continue to expand, although hiring is constrained by a shortage of qualified workers in some sectors. Constraints on the labor market could actually have the effect of slowing the rate of growth and extending the economic expansion. Additionally, the federal tax cuts have increased corporate profits, which could lead to even more hiring and higher wages, Morrison said.

The strong job outlook has contributed to consumer confidence, which is at its highest level since 2000. That confidence is fueling consumer spending, which accounts for about 70 percent of GDP. Some experts note that such peaks in confidence have preceded previous recessions, and that the market is overdue for consumers to tighten their belts. But Morrison is not in that camp. “I believe there is still room for consumer spending to expand,” she said.

Of course, there will be another recession at some point, she said. The question is when and how deep. She predicts the economy could continue to grow for another 12-18 months before the economic cycle reverses, barring such unpredictable events as additional tariffs or escalation of the trade war with China.

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