Expect another year of modest U.S. economic growth but little risk of a recession, two top investment strategists from UMB Bank told customers Thursday in Colorado Springs.
No key warning sign is pointing to a recession and major economic indicators such as consumer confidence, the unemployment rate and inflation suggest slow but steady economic growth for the rest of the year, KC Mathews, UMB’s chief investment officer, said during a stop by the bank’s economics roadshow at the Kissing Camels Golf Club. That doesn’t mean a recession won’t happen, but the likelihood is low.
“I hear people say we are due for a recession — we are 10½ years into this economic cycle, which is now the longest expansion since the Civil War — but the length of the cycle has nothing to do with a recession,” Mathews said. “We are not due for a recession. If you look at the data, this (expansion) could go on for a number of years.”
Mathews is forecasting U.S. economic growth at 1.8% this year, down from 2.3% last year, and stock market gains of 4% to 6% as measured by the Standard & Poors 500 index, down from 31% last year. He expects continued low inflation, and thus interest rates to remain largely unchanged for the rest of the year, with neither rate cuts nor hikes by the Federal Reserve’s Open Market Committee.
Mathews and Eric Kelly, UMB’s director of research, don’t expect surging federal budget deficits, the upcoming presidential election, the spread of the deadly coronavirus in China or trade tensions and tariffs to topple the nation’s economy. Concerns over a federal government shutdown, the impeachment of President Donald Trump, trade battles and military tensions with Iran didn’t sink the economy last year, so there is little reason to believe other factors will trigger a recession this year, they said.
Both executives see plenty of “wobbling dominoes” in the nation’s economy that are concerning, but “no reason to call for a recession,” Mathews said. Instead, look for a decline in leading economic indicators, a sharp rise in unemployment insurance claims and a month or more of short-term interest rates rising above long-term rates as warning signs of a recession within the next nine to 12 months, he said.
The biggest concern most businesses face, Mathews said, is finding enough qualified workers to fill open positions, even when offering higher wages. He expects a tight labor market to remain a long-term problem that will require businesses to invest more heavily in technology, such as artificial intelligence and autonomous vehicles, to reduce the need for workers they can’t find.
UMB is recommending its clients invest this year in stocks of large companies, short-term high-yield bonds and real estate to capture the highest returns.