Is a recession coming? Local economist weighs in

Posted at 6:36 PM, Sep 19, 2019
and last updated 2019-09-19 18:36:24-04

GRAND RAPIDS, Mich. — As scores of economists warn of a looming recession, one in West Michigan forecasts the next major economic slowdown to hit by 2020, but says not everyone will feel it.

A constraint on workers, a high price on goods and an economy low on cash are all signs of a slowing economy that could contribute to a recession, economist Paul Isely said.

After the gross domestic product surpassed its potential in 2018, Isely and his team at Grand Valley State University predicted a recession would hit in late 2019 or early 2020. Historically, when this happens to the GDP, a slowdown follows.

“Generally, not always, but generally, we end up with a recession in 18 to 24 months and that’s happened the vast majority of the time since WWII," Isely said. “So the real question is, how deep? And will it be in the first six months, the last six months, maybe a year from now?”

In the past week, the Federal Reserve made two moves that back up Isely's theory. It added over $50 billion in cash to to economy and lowered interest rates for the second time since July.

“Lowering interest rates is a little bit like sugar candy," Isely said. "It gives you a pop but it doesn’t stay for a long period of time because once people get used to the lower interest rates, then it doesn’t add anything more.”

According to Isely, a recession like the one he is predicting is not something most people should worry about.

“We’re looking at something that might be just a slowdown to a little bit of a recession," Isely said. "We’re not looking at anything right now that suggests that it’s gonna be a deep, ugly something or other.”

Contrary to the claims of President Donald Trump's adversaries, Isely said the occupant of the Oval Office isn't to blame.

“I think we would be close to a recession as we go into next year, it wouldn’t matter who had been elected," Isely said. "It wouldn’t matter whether their trade war had happened. It wouldn’t matter if taxes had been cut.”

Instead, Isely insists recessions are part of the natural cycle of the U.S. economy. However, the 2008 recession caused enough damage that its effects are still making waves.

“In 2008, if you think of a pond, it was like someone heaving a stone into the pond," Isely said. "It created a big hole and it was really painful. The recessions that we’re talking about here are the ripples that are coming off from that rock that you threw in.”

While the economic hit may not be as hard as it was in 2008, Isely said the recovery will be slow.

“The people who lose their jobs this time around, just like in 2008, will find it harder getting back into the labor market," Isely said.

Isely offers advice for people worried about losing their job.

“People are becoming technologically unemployed on the other side, so as we think that we may be seeing a recession sometime in the next year, the best thing that people can do who need to continue to work is to expand their skillset," Isely said. “They should be looking at their job and say, ‘Is the job that I’m doing transactional? If I’m doing something that can be replaced by a computer pretty easily, then I should change so that I’m facing customers more or so that I’m doing things that are higher knowledge.'"

Among the data Isely takes into consideration when forecasting, the United States Consumer Sentiment is the most indicative of consumer confidence. Currently, confidence isn't great.

“If we see another drop like that, then consumers will be a little spooked," Isely said. "Won’t spend as much at the holidays, won’t spend as much for, as they go into the new year, might not buy that car and that will slow the economy down even further.”

It being an election year doesn't help, either.

“One of the things about consumers is during an election year, the party that’s not in power, their job is to tell you how bad your life sucks," Isely said. “The more people believe it and buy into that concept, the more they roll back their consumption.”