by Calculated Risk on 1/02/2020 03:24:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2020. I'm adding some thoughts, and maybe some predictions for each question.

1) Economic growth: Economic growth was probably just over 2% in 2019, down from 2.9% in 2018. The FOMC is expecting more of the same with growth around 1.9% next year. Some analysts are expecting growth to pick up a little in the coming year as the trade war eases and global growth increases.  How much will the economy grow in 2020?

First, since I'm frequently asked, I don't see a recession starting in 2020.

Here is a table of the annual change in real GDP since 2005.  Economic activity has mostly been in the 2% range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%., although demographics are improving somewhat (more prime age workers).

Note: This table includes both annual change and q4 over the previous q4 (two slightly different measures).   For 2019, I used a 2.0% annual growth rate in Q4 2019 (this gives 2.3% Q4 over Q4 or 2.3% real annual growth).

Real GDP Growth
Year	Annual GDP	Q4 / Q4
2005	3.5%	3.1%
2006	2.9%	2.6%
2007	1.9%	2.0%
2008	-0.1%	-2.8%
2009	-2.5%	0.2%
2010	2.6%	2.6%
2011	1.6%	1.6%
2012	2.2%	1.5%
2013	1.8%	2.6%
2014	2.5%	2.9%
2015	2.9%	1.9%
2016	1.6%	2.0%
2017	2.4%	2.8%
2018	2.9%	2.5%
20191	2.3%	2.3%
1 2019 estimate based on 2.0% Q4 annualized real growth rate

The FOMC is projecting real GDP growth of 2.0% to 2.2% in 2020 (Q4 over Q4).

Goldman Sachs recently projected: "Easier financial conditions, the end of the inventory adjustment, and strength in consumer spending also suggest a solid growth outlook, and we expect growth to accelerate modestly to 2.25-2.5% in 2020."

The most recent CBO forecast is for 2.1% real GDP growth in 2020.

Note: The Trump administration projected 3.5% annual real growth over Mr. Trump's term: "Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate." (now removed from Trump website).  That didn't happen.

As expected, there was a slowdown in growth in 2019 due to a combination of factors.  The fiscal boost faded in 2019, housing was under pressure early in the year from higher mortgage rates and the new tax policy, and the negative impact from the trade war.

Looking to 2020, fiscal policy will likely have a minor impact.   Trade tensions have eased somewhat.  Oil prices have increased in 2019, and this will be a slight positive on economic growth in certain states in 2020.   Housing is getting a boost from lower mortgage rates.   However, auto sales are mostly moving sideways.

These factors suggest real GDP growth probably in the 2% to 2.5% range in 2020.

Here are the Ten Economic Questions for 2020 and a few predictions:

• Question #1 for 2020: How much will the economy grow in 2020?
• Question #2 for 2020: Will job creation in 2020 be as strong as in 2019?
• Question #3 for 2020: What will the unemployment rate be in December 2020?
• Question #4 for 2020: Will the overall participation rate start declining in 2020, or will it move more sideways (or slightly up) in 2020?
• Question #5 for 2020: How much will wages increase in 2020?
• Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
• Question #7 for 2020: Will the Fed cut or raise rates in 2020, and if so, by how much?
• Question #8 for 2020: How much will RI increase in 2020? How about housing starts and new home sales in 2020?
• Question #9 for 2020: What will happen with house prices in 2020?
• Question #10 for 2020: Will housing inventory increase or decrease in 2020?