Mild recession could hit U.S. in 2020, CUNA Mutual economist says

While the long-running U.S. economic expansion will continue through next year, a mild recession could be in store for 2020, the chief economist for CUNA Mutual Group predicted Thursday.

Economist Steven Rick told attendees at the organization's ninth annual Discovery Conference in Madison and said in a statement that economic growth will likely slow from its 3 percent pace in 2018 to 2.3 percent in 2019, which is still above above historical averages.

Rick said the U.S. continues "to enjoy one of the most prosperous stretches of economic expansion" in history.

"Today, there are more job openings than unemployed people in this country, marking the first time that’s ever happened," Rick said. "Unemployment sits at about 4 percent now and should fall as low as 3.4 percent in coming years — far below the expected long-term unemployment rate of 4.7 percent.”

Rick said long-term and short-term interest rates will continue to rise as the Federal Open Market Committee seeks a "neutral Fed funds rate" of 3 percent to counter inflation brought by higher oil and import prices, as well as the outperforming labor market, which will drive up wages. Those factors can be signs of an overheating economy, which could lead to a mild recession in the second half of 2020, he said. 

“Whenever savings rates drop to 3 or 4 percent, expect a recession the next year,” said Rick. “Given how consumer confidence is at its highest level in 18 years — prior to the dotcom crash — it’s no surprise that people are buying instead of saving. We are now down to 3 percent, so a recession by 2020 seems likely, but we should not be worried about it resembling what we experienced a decade ago in 2008.”

Rick said that when a recession occurs, weakened confidence will spur Americans to save more. That should lead to more deposits at credit unions and banks.

CUNA Mutual Group provides insurance and other financial services for credit unions, their employees, their members and others. Credit unions are like banks in many ways, but they are financial cooperatives owned by their members instead of by shareholders.

“What’s most important to take away is that consumers are brimming with confidence as the economy continues to create more jobs than can be filled, and nearly all indicators of economic health continue to show very positive signs,” Rick said. “They’re purchasing automobiles and homes, and they see every reason to be optimistic. At the same time, this has resulted in consumers being overly optimistic and not saving at sufficient levels. Typically, this is the point in the cycle where the economy soon corrects itself with a recession, which will make consumers start saving again, and that will continue to help credit unions grow and prosper.”