Since the earliest days of the current economic expansion, there have been naysayers asserting the US was on the brink of another recession. Remember all the fear about another wave of home foreclosures, or a disaster in commercial real estate, or the Fiscal Cliff, or Greece potentially leaving the Eurozone, or German bank defaults, or even the inverted yield curve earlier this year? The list goes on and on.
One by one, the pessimistic theories have been proven wrong. Yes, the US will eventually fall back into a recession. But we don't see it happening this year or next, and probably not in 2021, either.
It's early, but we think the US economy is poised to grow around 2.5% in 2020, about the same pace as this year. Earnings remain at solid levels in spite of the headwind of trade uncertainty, which should diminish in the months ahead. Technological innovation is proceeding at an amazing pace. The key M2 measure of the money supply has accelerated; M2 is up 6.6% in the past year versus a 3.5% gain the year ending one year ago. Businesses are continuing to adjust to a lower corporate tax rate and a better regulatory environment.
This does not mean that every aspect of the US economy is going to be rainbows, teddy bears, and flying unicorns. We are not experiencing the rapid economic growth we had back in the mid-1980s or late-1990s. But the economy has picked up from the Plow Horse pace of mid-2009 through early 2017.
While we expect the economy to grow around 2.5% next year, some sectors won't do quite as well. For example, fundamentals like driving-age population growth and scrappage rates suggest sales of cars and light trucks (like pick-ups and SUVs) will probably continue to slow somewhat in the next few years. This isn't reason to shed macroeconomic tears, however. Autos sales have been gradually slowing since 2016 while the overall economy has accelerated.