U.S. Economic Growth Will Slow in 2019, But Will Not Stop; Predictions For a Recession This Year Have ‘Little Basis in Reality’, Says New Forecast

March 14, 2019—LOS ANGELES, CALIFORNIA—Following solid growth in 2018, public sentiment about the U.S. economy has turned remarkably – and unnecessarily – grim, according to a new forecast released today by Beacon Economics. Driving the pessimism could be anything from the recent stock market slump to slowing home sales to the fear of an expanding trade war, but according to the new forecast, nothing on near-term horizon has the capacity to cause a downturn, much less a recession.

“Growth in the U.S. economy will certainly slow this year from 2018 levels,” Christopher Thornberg  Founding Partner of Beacon Economics and one of the forecast authors. “But this is because the sugar rush and short-term stimulative boost created by the 2017 Tax Cuts and Jobs Act is wearing off – as expected.” Thornberg notes that while there have been weaker-than-normal numbers in some economic data, they are in line with the normal ebb and flow of growth. Moreover, fundamental indicators of economic health such as the consumer savings rate, wage growth, and debt levels all look good.

The new forecast has U.S. economic growth falling to the low 2% range this year from 2.9% in 2018, and expects labor markets to continue adding jobs, although at a slower rate. “The current economic expansion has been historic and it will come to an end, but that end has to be driven by a large, rapid, and negative shock to the economy – we simply don’t see any imbalance right now that has the capacity to knock economic growth off its rails this year.”

One of the main sources of the current angst revolves around the flattening of the U.S. housing market. While the new forecast acknowledges a slowdown, it argues that housing has shifted to neutral but has not moved towards anything resembling a decline. Home prices, in particular, are still rising. According to the forecast, as 2019 progresses, housing market activity will likely pick up.

At the state level, California’s economy is increasingly hampered by the state’s housing shortage and a greater sense of urgency has developed around the issue as reflected by more aggressive action from Governor Gavin Newsom and the State Legislature. Still, current housing market conditions are in flux. “Because of a spike in mortgage rates in late 2018, home sales got off to a slow start this year,” said Robert Kleinhenz, Beacon Economics’ Executive Director of Research and one of the forecast authors “Rates have retreated since then. Assuming they hold steady in the next few months, the peak season of 2019 could be better than many expect.”

Longer term, however, Kleinhenz says the chronic lack of home supply, and the high housing costs that deficit contributes to, is only growing in magnitude. “California needs to build far more homes than it has been building and the state’s economic future will be tied to our ability to do that,” said Kleinhenz. “But this is a stubborn, complicated problem and it’s taken a long time to get to where we are – it won’t be solved overnight.” Part of the complexity, he notes, lies in the fact that efforts at the state level to increase housing venture into land use policymaking, which has historically been the purview of local jurisdictions, making it challenging to craft a comprehensive solution.

Overall, the new forecast has California’s economy on a steady growth track for the first part of 2019. The unemployment rate in the state as a whole, and in many of its metro regions, continues to be at or near record lows, and job gains persist across nearly all of California’s industries.

View the full forecast report, Beaconomics, for additional insights.

Beacon Economics is an independent economic research and consulting firm based in Los Angeles. This analysis was authored by Christopher Thornberg and Robert Kleinhenz. Learn more at www.beaconecon.com.