Dr. Charlie Hall gives economic forecast at the Farwest Show
Wednesday, August 28, 2019
Posted by: Beth Farmer
Will there be a recession, and if so, how soon?
Keynote speaker and renowned green industry thought leader Dr. Charlie Hall gave his economic forecast at the 2019 Farwest Show, and it was can’t-miss information for hundreds of nursery owners, suppliers, service providers and others in attendance.
The economist and professor of horticultural sciences at Texas A&M University said that he can’t guarantee there will or won’t be a recession — no one can. However, history has to be considered, along with key economic indicators, in any such forecast.
Before going into that, he prefaced his remarks with a disclaimer. “No fake news today,” he said. “These are the economic facts …. Please know that I’m not trying to make partisan remarks.”
The economy goes through up and down cycles, and Hall said that the United States economy is in the midst of its longest period of expansion ever — 122 consecutive months and counting under the Obama and Trump administrations. That’s more than 10 years. On average, there’s a recession every 6½ years. This alone means a down cycle is likely coming.
“We’re overdue,” Hall said. “We’re well overdue for a recession.”
Hall mentioned several factors to consider — some encouraging, some not. Under the current economy, consumers remain about as confident as they did a year ago, and they continue to spend. However, the growth in spending is slowing, and so is the development of new housing, which is something the green industry has always relied upon to generate business. Unemployment is still very low but leveling off, and leading economic indicators are flattening as well.
Hall also said there is currently an inverted yield curve, in which the rates on 10-year treasury bonds are lower than those on two-year treasury notes. Normally a longer commitment yields a higher rate. Though nothing is certain, such an inversion often points to a recession.
Hall estimated the chances of a recession between now and the end of the year are 33 percent, rising to 50 percent in 2020 and 80 percent by the end of 2021.
“It’s coming,” he said. “Do we have some time? Yes.”
If a recession does come, it is not likely to be as severe as the Great Recession, Hall said. That recession was precipitated and exacerbated by a financial crisis, and regulatory steps — perhaps overzealous ones, he argued — were taken to ensure that it doesn’t happen again.
“We can’t have a financial crisis,” he said. “Fortunately, the financial sector is at low risk currently.”
In terms of current federal policies, Hall wasn’t a fan of current federal tax or trade policies.
He noted that based on the evidence, the Tax Cuts and Jobs Act that Congress passed and President Trump signed in late 2017 hasn’t generated the 3.5 percent economic growth that supporters promised.
“The tax cut was passed at the exact wrong time,” he said. “It made no sense.”
Moreover, it didn’t generate investment in the economy — companies largely used tax savings to buy back their own stock instead. It certainly didn’t reduce the federal budget deficit, which has exploded. Finally, the cut was supposed to benefit the middle class but mostly has benefitted the top 5 percent of earners instead.
“I’m talking about policies, and this policy has not played out,” he said. He added that the higher deficit will be “a handcuff on fiscal and monetary policy when stimulation is needed.”
Hall also noted that the trade conflicts between the United States and its trade partners, primarily China, are “killing ag in the Midwest.”
“A tariff is always a tax on consumers,” he added, contradicting claims that the exporting country pays the tariffs for imported goods. The importer pays them and passes the cost on to consumers.