‘Winter is coming,’ economists warn

As surely as winter follows summer, recessions follow expansions, likely by 2020, economists warn. File photo.

Economics is traditionally known as the “dismal science,” and a series of economists have proved it in recent weeks by reminding Idahoans that, while things are mostly going well now, the economy is cyclical and a recession is likely at some point, perhaps by 2020.

photo of william dunkelberg
William Dunkelberg. Photo by Sharon Fisher.

The most recent Small Business Optimism Index from the National Federation of Independent Business (NFIB) is at a 45-year high, William Dunkelberg, chief economist for the Washington, D.C. organization, recently told a group in Boise. Job creation plans and unfilled job openings set new records, the percentage of small business owners saying it was a good time to expand tied the all-time high from May, inventory investment plans were the strongest since 2005, and capital spending plans were the highest since 2007, he said.

photo of wayne best
Wayne Best. Photo by Sharon Fisher.

However, a number of factors could affect the economy going forward, said Wayne Best, chief economist for Visa Inc., at the same event. For example, because unemployment is so low, companies are having trouble hiring employees they need to expand. This is particularly prevalent in the building industry, limiting housing construction, which in turn increases housing prices. Consequently, housing sales are down, meaning sales of goods associated with home purchases – furniture, rugs and so on – are also down, he said.

In addition, it isn’t clear what impact tariffs will have, Best said. Although direct effects might be less than people think – China is responsible for only 4 percent of U.S. imports – indirect effects could be greater due to supply chain disruption, he warned.

Three increases in the Federal Reserve interest rate are expected next year, with another expected in 2020, Best said. While they are each likely to be small – like the 0.25 percent increase on Sept. 26, the third this year – and individually won’t have much of an effect, overall they will create a dampening in the economy, he said. On the bright side, the increase in interest rates is likely to result in higher savings as well, he added.

Consequently, of several factors stimulating the economy right now, only a few are likely to still be in force by 2020, and several other factors will be hurting it, making it more likely that the economy – currently in one of the longest economic expansions since World War II – will enter a recession by 2020, Best warned. In addition, while the next recession is not likely to be as deep as the 18-month long “Great Recession,” it may last longer because the amount of government debt will make it harder for governments worldwide to stimulate the economy, he said.

photo of peter crabb
Peter Crabb. Photo by Sharon Fisher.

Peter Crabb, financial economist for Northwest Nazarene University in Nampa, made similar predictions at an event in Canyon County earlier in the month. The country is on the verge of an “inverted yield curve,” where interest rates are higher for short-term investments than for long-term, and that typically presages a recession, he said. In addition, productivity is not growing because the U.S. is at a technological plateau, and the rate of growth in the U.S. economy is declining, he said.

In Idaho, the economy has become less volatile since the recession because the state has diversified away from lumber and potatoes, Crabb said. However, Idaho felt the effects of the last recession more strongly than other parts of the U.S. and didn’t bounce back as well, he said. Moreover, while Idaho’s economy is growing quickly, that is primarily because of the number of people moving into Idaho, he said, noting that the per capita growth rate isn’t that high.

photo of corey barton
Corey Barton. Photo by Sharon Fisher.

When a recession might actually occur, of course, no one knows, the economists said. In the meantime, businesses need to be prepared, Corey Barton, president of CBH Homes, told the Kuna Chamber of Commerce.

“The market is cyclical, and we have to accept that,” he said. “There’s a downturn in the future somewhere, and in the meantime, we’re prepared to make adjustments.”