The U.S. Economy
The Conference Board released its findings for the U.S. economy on 10 April, 2018. The group indicates that the U.S. economy has slowed a great deal since the middle of 2018, to just over 2 percent in the first half of 2019. Although set to see “solid though not spectacular performance this year”, 2019 data so far point to more challenging business conditions than 2018. While low unemployment and fast wage growth have contributed to consumer optimism, that outlook has dimmed since October, while retail sales and consumer demand also faltered.
Businesses still face threats to profitability, and both domestic and external demand are slowing. Effects from Trump’s tax cuts were short-lived, and any increase in wages has been offset by a lack of pickup in inflation, which narrows business margins.
The Conference Board says that while the recent temporary inversion of the yield curve has raised fears of recession, slow growth does not necessarily need to end in a downturn.
The Fed’s postponement of further rate increases until after this year do not necessarily imply an impending recession, but rather that they anticipate lower future inflation risks, “and firms should not view near-term recession risks as elevated.”
They explain that the growth slowdown “primarily reflects the economy’s reversion to limits imposed by labor and capital constraints. Labor market tightness has increased in recent months with the number of workers on the side-lines shrinking and working-age population growth stalling due to demographics. To increase growth potential for the medium-term, firms will have to execute strategic investments that boost productivity. If companies succeed at that, slower growth does not need to produce a downturn”.
The Global Economy
The Conference Board has indicated that the plateau of global economic growth during 2018 has turned into “a modest slowdown” for 2019, and has adjusted their global growth outlook for 2019 to 2.8 percent, down 300 basis points from their earlier projection of 3.1 percent. They cite long-term factors such as stagnant labor supply and weak productivity growth as contributing factors, along with a shift in monetary policies by the world’s central banks toward greater easing.
They counsel business leaders and policy makers to avoid overreacting to short-term volatilities and stay focused on strategies and policies that raise the long-term potential of the economy.