Financial Sense Newshour spoke with Ryan Sweet, director of real-time economics at Moody’s Analytics, to discuss his forecast for a holiday spending boom and 2020 bust. Ryan is considered one of the most accurate high-frequency forecasters of the US economy, according to MarketWatch.
Here’s what he told listeners on Saturday’s podcast (click here for audio – interview starts at 40-minute mark).
We are currently in a boom phase fueled by tax cuts and a bump up in spending in the energy and mining sector as a result of higher oil prices.
Current economic momentum is likely to continue into the first half of 2019 with a possible record low unemployment number of 3.2 percent next year.
With the job market continuing to tighten, the economy running above trend, and wage growth now picking up, there’s a good chance we’ll see some of the best holiday spending in years this Christmas season.
Starting in the second half of 2019, however, they expect the current boom phase we’re in to reverse as the favorable tailwinds provided by fiscal and monetary stimulus wear off.
2020 is when the economy is likely to go bust and become much more vulnerable to an exogenous shock, Ryan said.
Without a significant trade deal struck between Trump and Xi Jinping, tariffs and trade tensions between the world’s two largest countries are likely to weigh more heavily on global economic data going forward.
Ryan cited a big jump in supplier delivery times as a sign that trade tensions are already disrupting the global supply chain.
Meanwhile, the Federal Reserve is trying to engineer a soft landing using the 1994-1995 period as their playbook, he said.
History suggests that the Fed will overshoot on rates and we’ll see bubbles start to pop, however:
“I think ’94-’95 is in their playbook and they’re trying to replicate that but that was more of an anomaly. Most of the time the Fed overdoes it and they raise rates too quickly or they set monetary policy too restrictive; that really causes financial market conditions to tighten and usually that begins to show some of the imbalances in the economy. Bubbles start to pop and the economy eventually falls into a recession.”