States need to prepare now for a recession that’s likely to strike the United States in the middle of 2020, the chief economist for Moody’s Analytics, Mark Zandi, said Friday.
Chances for a recession are “high and rising,” as high as 2-1 odds or a 67% chance that the national economy will stall and start contracting in the second quarter of 2020, Zandi said, based on economic indicators ranging from the bond market to job creation.
“When the measure is that high, there’s always been a recession. It’s never falsely predicted a recession,” said Zandi, speaking at an event sponsored by the Pew Charitable Trusts. (The Pew Charitable Trusts funds Stateline.)
Former governors who went through the last recession counseled fiscal restraint and saving while times are still good. Former Vermont Gov. Jim Douglas, a Republican, said plowing tax surpluses into new, long-term programs will “get you in trouble in the long run,” and former Oregon Gov. Ted Kulongoski, a Democrat, said investing in new technology for things like hunting and fishing licenses can cut costs in the long run.
Job growth is slowing, a trend that could end in unemployment spikes that always signal a recession, Zandi noted. “If job growth slows any further, then unemployment starts to rise,” he said. “If unemployment rises, it’s ‘game over.’”
“What could take us down? The trade war is at the top of the list. That is a big deal,” Zandi said. Asked what could prevent the looming recession, he added, “It’s up to the president. If the president could see his way to stand down on the trade war relatively soon, help us come to some kind of arrangement with the Chinese.”
The trade war has eroded business confidence, but consumers will feel the bite too if further tariffs are imposed on consumer goods, Zandi added.
“It’s not like you walk down the aisles of Walmart now and see the effects of the trade war, but the next round of tariffs are almost entirely consumer goods,” Zandi said. Other factors: business profits are declining as labor costs rise, and investment spending is stagnant despite low interest rates.
“That’s particularly telling because those tax cuts were supposed to juice up investment, right?” said Zandi, adding that the federal stimulus would help states more if it paid for things like food stamps and education. That would help states weather a downturn in tax revenue, while a general tax cut might be pocketed as savings by wealthier people.
Elaine S. Povich contributed to this story.