Last month, I recalled a recent meeting with a real estate agent in which he challenged the popular (although paradoxically, also unpopular) opinion that the U.S. and or global economy is headed towards recession. We started going through some of the micro and macro-level economic factors and it got me thinking differently about the next nine months. Things can change, and sometimes people have to eat their words, but here are some reasons we should be optimistic in 2019.
- The Housing Market has Stabilized — Not Contracted: If you’ve been following the rising value of your home over the past few years, you might be worried that we’re in a housing bubble and that it’s bound to burst (like it did in 2007-2008), precipitating another recession. And, to be fair, over 2018, the pace of growth in home values has slowed. But the bottom hasn’t fallen out. Home prices have actually stabilized, and the pace of growth has returned to something resembling normal, said our real estate agent. Real estate analysts agree.
- The U.S. Economy Continues to Grow; Unemployment’s Historically Low: Despite political division and dysfunction at home, the U.S. economy continues its nearly ten years of continuous, albeit cyclical, economic growth. Gross Domestic Product (GDP) reached 2.4% in the last quarter of 2018, and averaged 2.9% for the whole year — matching its best year since the Great Recession (2015). Moreover, 304,000 jobs were gained in January and the unemployment rate ticked up to 4.0%. Wages continue to rise.
- The U.S. Government is Open for Business Again: On January 25, 2019, the longest shutdown in U.S. government history came to an end. For 35 days, a divided Congress and a polarizing President were locked in an intractable struggle to fund the government amid a deeply-partisan debate over immigration policy, border security, and funding for a wall on the Southern Border of the U.S. Despite fear that the shutdown could continue for months, both sides agreed to a funding bill and stopped the proverbial bleeding in the economy.
- The U.S. and China Continue to Negotiate on Trade: In January of 2018, the U.S. government began slapping tariffs on more than $250 billion in Chinese products, and continued to increase the percentage through most of 2018. China soon retaliated and has thus far placed tariffs on $110 billion in U.S. products. But beginning in November 2018, the U.S. halted further increases amid negotiations with China and plans to agree to a formal trade deal. Importantly, news broke on February 24, 2019 that the U.S. and China planned to forego placing additional tariffs on each other’s goods as they continued to negotiate better trading terms. If the two sides continue to make progress and limit or even begin to scale back further tariffs, the so-called “trade war” between the U.S. and China would no longer be a risk factor for recession.
Final Thoughts
Considering these domestic economic trends and bilateral political negotiations, it seems almost premature to say that the U.S. and or the global economy will slip into recession later this year. As laid out before us, there are some significant positive factors to keep in mind when thinking about the future. Of course, there’s more to the story — there are more factors at play here. In a subsequent article, I’ll revisit four reasons why some analysts are bearish on the economy and still think we’re headed for recession.
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