Metro Economy Outlook explores risks and opportunities

October 30, 2019

In the midst of concerns about possible recession, economist Bernard Baumohl offered key insights into economic indicators and factors that might trigger a recession at the 20th Annual Metro Economy Outlook on Oct. 24th.

“If there is any point I want you to walk away with it’s this,” Baumohl said, “It is very difficult for a $22 trillion  free market, open, highly liquid economy to actually have a recession. You really need a confluence of major negative events of significant magnitude to shove that economy off course.”

“We are at a pivotal moment in our economy with 11 years of growth – the longest stretch ever,” said economist Bernard Baumohl . “The fundamentals of the economy still look pretty good. The job market remains healthy, wages are climbing faster than inflation giving consumers more purchasing power, inflation remains dormant, borrowing costs remain some of the lowest we’ve seen in many years, and there’s ample capital for investment.”

Baumohl, who was named the most accurate economic forecaster by Wall Street Journal, presented three scenarios. In the main forecast presented with a 55% probability, he forecasts GDP growth at 2.2% in 2019, 2.3% in 2020 and 2.6% in 2021 if U.S. and China achieve an interim deal and rollback in tariffs. Alternately, if trade war continues to escalate in 2020, GDP growth would grow by only 1.8% in 2020 then 2.4% in 2021. And in a final scenario, Baumohl suggested if U.S. and China reach a comprehensive trade deal mid-2020 we could be looking at a rebound with GDP growth at 2.5% in 2020 and 3.1% in 2021.

“Without a doubt the number one group that could impact the economy is the consumer,” Baumohl said. But, he also indicated that, with e-commerce picking up significantly, we’re not seeing the typical tapering of consumer spending after 2009 recession. Shifting demographics could have an impact with Millenials and Gen Z exhibiting more conservative spending habits and less inclined to buy homes.

Along with consumer spending, other key indicators to keep an eye on include employment data and business. Unemployment remains low. Meanwhile, companies are scaling back investments in the midst of economic uncertainties and number of new orders for manufacturing contracting.

“Exogenous shocks pose the greatest threat to the economy.” This might be anything from a foreign adversary launching a cyber attack that paralyzes parts of the U.S. economy to U.S./Chinese military confrontation.

Baumohl followed with several ways businesses might prepare for varying scenarios:

  1. Companies should undertake rigorous stress tests to identify areas of vulnerabilities. Conduct “what if” scenarios to think about what you can remain operational in the midst of a disruption such as systemic power failure.
  2. Buy cyber theft insurance, upgrade software and hire reputable firms to identify potential threats.
  3. Dedicate a risk management team to engage in geopolitical forecasting – key for companies that have foreign exposure such as customers, supply chain, investors, etc.
  4. Focus on being agile to give customers reliable service.

View Baumohl’s full presentation