No downturn imminent, economists tell Md. bankers

Despite increased volatility from the stock market during the past month, economic growth should be expected to continue following a strong 2018, financial leaders and economists said at the Maryland Bankers Association 12^th Annual “First Friday” Economic Outlook Forum.

While the stock market has waxed and waned, Friday’s strong jobs report supported notions that economic growth will continue, though likely not as strong as the 3 percent gross domestic product growth in 2018.

“If I net it, 2018 has finished very strong. In that context we have been returning rates to our normal levels,” Thomas I. Barkin, president of the Federal Reserve Bank of Richmond, said. “I do forecast growth to continue this year, though at a somewhat slower pace.”

Barkin, who took over the Richmond Fed last January after a long career at consulting firm McKinsey & Co., said for the economy to meet more optimistic projections of 3 percent GDP growth in the next couple of years it must increase productivity and workforce participation.

One of the downsides of the recession of 10 years ago has been that business leaders may be too shy to make investments in their business, fearing another downturn is around the corner. That may have led to a decrease in productivity, he said.

He also believes workforce participation can improve by increasing legal immigration and finding ways to capture more women and rural workers.

Also at the outlook forum, Sage Policy Group Chairman Anirban Basu led a panel of economists including Mark McGlone, chief investment officer at PNC Asset Management Group; James Glassman, managing director at JPMorgan Chase &Co. and head economist of Chase Commercial Banking; and Luke Tilley, chief economist at Wilmington Trust Investment Advisors.

All three economists dismissed the notion that an economic downturn or recession would be coming in 2019 or even 2020.

“The idea that we’re going to hit a recession in 2019 I think is a little ridiculous,” McGlone said. “There’s a tremendous amount of momentum in the economy … . We are coming into this year very strong and I think that momentum is going to continue.”

The panelists also down-played criticisms of the Federal Reserve’s recent interest rate hikes, including criticism from President Donald Trump, that the increases will have a negative effect on the economy.

Glassman attributed the volatility on Wall Street to traders imagining that the rate hikes will have more of an effect than the reality will be.

Instead, the Fed is moving to bring monetary policy back to normal levels from interest rates near zero.

“The Fed is not trying to slow the economy. The Fed is trying to get its foot off the gas,” Glassman said. “The goal here at the Fed is to just get your foot off the gas so you don’t create some new financial dislocation.”

The other looming question addressed was how the 2017 Tax Cuts and Jobs Act would continue to affect the economy. While the law contributed to 2018’s 3 percent GDP growth, economists are forecasting only a 2 percent growth for 2019.

That can be attributed more to the benefits having already being distributed. Workers have already received their tax cuts. They will still pay lower taxes, but the pool of extra money is not growing.

At the same time, there could be some potential potholes on the road of continued momentum that may lead to a downturn.

Tilley identified two potential bubbles. First would be a downturn in the equity markets, something he does not see happening.

His second bubble was the government and corporate debt markets, keeping a particularly close eye on the corporate markets. But even there, he does not see an issue in the near future.

The debt load “is dramatically higher than it was before the previous recession, but it is also affordable because of the (interest rates),” he said. “For now if the economy continues to grow as we expect, those debt loads are manageable because they have been financed at low interest rates.”

But McGlone warned about a more personal debt load, student debt, that has delayed younger generations from entering meaningful milestones like getting married, starting a family and buying homes.

“We as a society, it’s a big societal question of how much we want to have the younger generation indebted at the time that they first enter into the labor market,” he said.