2020 Economic Outlook: Expect Slower Growth But Minimal Recession Risk

While trade tensions with China created uncertainty within the U.S. economy (and even potentially slowed it down) in 2019, Jack Kleinhenz, Chief Economist at the National Retail Federation, is optimistic that retailers will achieve the association’s economic forecasts for the year, he said in a session at the NRF 2020 Big Show.

Kleinhenz predicted that real gross domestic product (GDP) growth would slow from 2.9% in 2018 to a 2.5% range in 2019, but still felt that these growth numbers are a positive sign of the economy’s stability going forward. He also expected that personal spending growth would decelerate from 3% to 2.5%. (These statistics will be confirmed when the first estimate of Q4 GDP and personal consumption spending become available at the end of January.) Kleinhenz attributed current high consumer confidence rates to factors such as rising disposable income and lower household interest rates, with the latter potentially leading consumers to spend more on high-ticket items.

“The consumer is the driver when you think about the growth of this economy, and when you look back at GDP, the consumer has had faster growth than GDP in five of the last seven quarters,” Kleinhenz said. “We’ve seen some good, but slower, job growth, but people really have confidence in their jobs, which is very important. I think that the households are being supported by the job market in the fact that they have jobs, they feel secure about their jobs and they feel secure about their income.”

Session panelist Yelena Shulyatyeva, Senior U.S. Economist at Bloomberg Economics, also emphasized the consumer’s role in driving economic growth, pointing out that the company’s research indicates that non-consumer-related GDP growth amounts to zero.


“For that to continue to happen in 2020, we need income to grow at a decent pace,” Shulyatyeva said. “The latest payrolls report we examined indicated that [income growth] slowed down quite significantly; it was running at about 5% growth at the beginning of last year but has slowed down below 4% as of December. That puts the consumer on a slightly weaker footing at the beginning of 2020 than they were back in the beginning of 2019.”

Bloomberg Economics anticipates economic growth slowing down, from 2.2% in 2019 to approximately 2% in 2020, but Shulyatyeva noted that the dip isn’t significant enough to bring back concerns of a recession, and that economic expansion should continue for a few more years.

“In our projections, we don’t see a recession any time soon,” Shulyatyeva said. “We didn’t see one last year. Our recession model incorporates market indicators that the Fed is looking at like yield curves, but we also incorporate a lot of macroeconomic variables such as net debt payments by corporations relative to corporate profits. When you incorporate these variables, it gives you a 25% probability of recession percentage at most.”

NRF isn’t releasing its holiday sales data until Jan. 16, so Kleinhenz did not make official comments related to the holiday season results, including how they would affect full-year 2019 performance totals or predictions for 2020. In February 2019, NRF had predicted that retail sales – excluding automobile dealers, gasoline stations and restaurants – would increase between 3.8% and 4.4% for the year, with holiday sales growth projected to range between 3.8% and 4.2%. Retail sales were up an average of 3.5% during the first 11 months of the year.

Early analyses of holiday 2019 results indicate the season was a solid if unspectacular success, with Mastercard Spending Pulse reporting overall retail sales growth of 3.4% and online sales increases of 18.8%.

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