Don’t Take All That Talk About Economic Growth or a Recession to the Bank (Yet)

It seems you can’t scroll through your social media feed or morning newsletter without reading commentary about inverted yield curve and recession.

A 2020 economic recession is the talk of political pundits, financial talking heads, and presidential hopefuls, but the verdict is out on whether the longest sustained economic growth in U.S. history is grinding to a halt.

At a recent speech in Jackson Hole, Federal Reserve Chairman Jerome Powell said the global growth outlook has been deteriorating, with trade policy uncertainty playing a role among other factors. Conversely, Powell also said the economy is close to both goals of price stability and full employment. So, that’s pretty much a wash.

Zooming down to the state level, one could look for insights on state budgets closing for 2019 for any evidence of economic trouble like missed revenue projects on income tax or non-wage income like capital gains or dividends.

The National Association of State Budget Officers, or NASBO, released their review of the 50 states’ 2019 fiscal year close, with most states seeing year-over-year revenue growth. NASBO also reviewed recommended budgets for fiscal year 2020, with 47 states proposing spending increases. The report also noted that 2019 spending grew by almost 6 percent and most budget proposals from state governors are based on a four percent general fund revenue growth.

It is also worth noting that a record increase was reported in investments in state “rainy day funds,” reaching 7.5 percent cumulatively of their 2019 general funds. States are putting some money in the bank, but they are also planning on spending even more.

California passed a booming $214.8 billion budget this summer, with Governor Newsom and state lawmakers calling it a strong fiscal foundation. It was also the largest budget enacted in state history.

A recent Bloomberg survey found that only 35 percent of economist think there will be a recession within the next year. And as noted in Bloomberg and a Federal Reserve brief, the much-discussed yield curve inverts more frequently than people realize, even if the risk of recession has not increased at all.

Talk of positive or negative economic impacts is just that right now. Economists, and those pretending to be one, seem to be stuck between pundit talking cycles comparing the doom and gloom of a coming recession to strong earnings from industries like retail.

One thing that Congress could do to put the U.S. on the path toward sustained economic growth is to adopt some of the reforms suggested by PRI’s Wayne Winegarden in his Beyond the New Normal series.  Earlier this year, he recommended a series of entitlement and policy reforms to get the federal budget to its growth-maximizing spending level of 15 percent of national income. Moving in this direction would address the troubling increase in the national debt in recent years and put the United States on the path toward regular three and four percent annual growth rates.

So, will there be a recession? Or will we continue to see sustained economic growth? We just don’t know, yet.

Evan Harris is the Pacific Research Institute’s media relations and outreach manager.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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