US Expansion To Continue In 2020, No Recession… Unless – ValueWalk Premium
US Expansion

US Expansion To Continue In 2020, No Recession… Unless


by Gary D. Halbert

December 31, 2019

Q3 2019 hedge fund letters, conferences and more


  1. Recap of US Economic Growth in Recent Years
  2. Slower US Economic Growth Expected in 2020
  3. Given Aging Business Cycle, Is Recession Inevitable?


With the year-end upon us, we are showered with economic and market forecasts for the New Year, as usual. Most of the forecasters I read expect the US economic expansion to continue next year, although many expect growth to continue to slow somewhat. Some I respect even predict the current unprecedented expansion will continue in 2021, thus further adding to the longest economic recovery ever recorded.

Most of the analysts I read also predict that the US economy will avoid a recession next year and maybe even in 2021. But such forecasts also come with some caveats, as you would expect. The two most common caveats are: 1) An escalation of President Trump’s trade war with China and others; and 2) The possible election of ultra-liberals such as Bernie Sanders or Elizabeth Warren to the White House in the November elections next year.

Likewise, most of the people I read believe the current bull market in stocks will continue next year and maybe even into 2021. While the gloom-and-doom crowd of forecasters always believes that a recession and financial crisis are just around the corner, most of the writers I read regularly think the stock market has the potential to continue on the upside next year and perhaps longer, depending on the caveats noted above.

So, today we’ll peer into the economic and market outlook for the New Year based on the forecasts I read, and I’ll add some of my own thoughts and concerns as we go along. One of those concerns is the fact that we are already in the longest economic expansion in history, as well as the longest stock bull market in history, and it is impossible to know in advance when they will come to an end. We are in uncharted waters.

As the old saying goes, “They don’t ring a bell at market tops or bottoms,” so we never know when they will happen. This argues for having some investments in your portfolio that have the potential to do well regardless whether the markets and the economy go up or down.

As recent studies have consistently shown, far too many investors (especially Baby Boomers) have way too much money allocated to “index” funds which only make money if the market continues to go up. I hope to convince more of my readers to change that in the New Year, before it’s too late. But I’m getting ahead of myself. Let’s get started.

Recap of US Economic Growth in Recent Years

Let’s begin by looking at the recent economic data. The latest reading on US Gross Domestic Product, the sum of all goods and services produced in this country, is that GDP in the 3Q rose by 2.1% (annual rate) following 2.0% in the 2Q and 3.1% in the 1Q.

US Expansion

For the nine months ended September 30, the economy grew at an annual rate of 2.4%. That followed growth in GDP of 2.9% in 2018 and 2.4% in 2017. Total GDP for 2019 is on-track to top $21.5 trillion, the highest ever recorded, even though the rate of growth is slowing down.

Slower US Economic Growth Expected in 2020

Most of the forecasts I read for GDP growth in 2020 are slightly below 2%. The US economy is expected to continue its slowdown in 2020 but probably not slip into recession. This is due to continued strong consumer spending and a strong job market that stand to offset continued uncertainty over issues including trade, impeachment and the outcome of the next presidential election.

Capital Group, a large financial services company and sponsor of the American Funds (a mutual fund family), hosted an economic conference in New York earlier this month. Most of the advisors and economists who attended the conference predicted economic growth of 1.5% to 2.0% for 2020.

Interestingly, most of the attendees felt the US will avoid a recession next year unless there are some unexpected negative developments. Chief among those concerns is the chance that President Trump will ramp-up his trade war with China and other countries; however, most attendees felt the odds are low that the president will accelerate the trade war next year.

Most attendees also expressed concerns over the upcoming presidential election, especially if ultra-liberals like Elizabeth Warren or Bernie Sanders should win the White House. Yet most tempered those concerns by suggesting that Warren or Sanders would face an uphill battle getting their far-left policies through Congress – assuming the Republicans retain control of the Senate.

Others at the Capital Group conference also voiced concern about a recession next year should the yield curve invert again, especially if it is more pronounced than the modest inversion we saw earlier this year. Here, too, most attendees did not place high odds on this happening after the Fed lowered rates three times this year.

Given Aging Business Cycle, Is Recession Inevitable?

Earlier this year, the current US economic expansion, now in its 10th year, became the longest ever recorded. And the consensus seems to be it is only a matter of time before there is a recession, although it probably won’t be in 2020, according to most forecasters.

That does not mean the so-called “business cycle” has been repealed, and there is no question that we will experience another recession when this growth cycle ends. However, there is no reason why the current recovery can’t extend further. How much further, we just don’t know.

US Expansion

Meanwhile, although low US unemployment has continued to be a major positive for the economy, most forecasters at the recent Capital Group conference believed there isn’t much more that can be expected to improve on the labor front. That’s because they believe we’re already close to or at what’s generally considered full employment.”

I would point out, however, that there is a great deal of disagreement over what qualifies as full employment, and plenty of economists believe we can see further improvement in the labor markets next year – especially with a near-record seven million unfilled jobs out there. I agree.

In any event, the US economy will likely remain “bifurcated” for at least the first half of next year – with beleaguered manufacturing and business investment sectors, but healthier service sectors and continued strong consumer spending. This was the prevailing view at the Capital Group conference in early December.

While the manufacturing sector continues to decline, as measured by the ISM Index, there was some good news on the factory operating rate. IHS Markit, which monitors the nation’s factories, reported that its Purchasing Managers Index rose in November at the fastest rate since April. So, while the manufacturing sector is far from out of the woods, we may be seeing a bottom in the making. Let’s hope so.

And finally, let’s not forget that there are tons of cash sitting on the sidelines. There is $3.5 trillion of cash sitting in money market funds earning virtually nothing in the way of interest. Plus, there’s $5.3 trillion in cash and marketable securities on the balance sheets of S&P 500 companies and another $1.7 trillion on the books of Dow Jones firms. This could mean a significant improvement in business investment next year. We’ll see.

Putting it all together, the odds of a recession in 2020 look low. The latest Phase One truce in the US/China trade war is encouraging. I could be wrong, of course, but I don’t see Bernie Sanders or Elizabeth Warren winning the Democratic nomination. And the Fed appears committed to keeping the yield curve at least mildly positive.

Obviously, that doesn’t mean we can’t have a recession next year. Negative surprises happen from time to time. But for now, at least, a recession in 2020 is not the most likely scenario.

This should be good news for stocks in the New Year. Yet here, too, we must keep in mind that this is the longest bull market in history, and it could top out at any time. This is why I continue to recommend that you consider some of the actively managed strategies we recommend at Halbert Wealth Management.

In light of several recent studies (as I have discussed recently), we know that many investors, especially Baby Boomers, have way too much of their net worth invested in “index” funds that are nearly 100% invested in stocks – which will get hammered in the next serious correction or bear market.

If you are in this position, we can help you diversify in an effort to reduce risk. Call us at 800-348-3601 and speak to one of my non-commissioned Investment Representatives or visit our website at


Wishing you the best in 2020,

Gary D. Halbert


The Balance: US Economic Outlook 2020 & Beyond (Fed Forecasts)

Forbes: US GDP Growth to Remain Steady in 2020

Gary's Between the Lines Blog: House Passes $1.4 Trillion Spending Deal To Avert Shutdown

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