Business economists have turned decidedly more bearish on the U.S. economy. According to the latest outlook survey from the National Association of Business Economists, U.S. GDP growth, adjusted for inflation, will slow to 2.3% this year and 1.8% in 2020, both down from 2.9% in 2018.

An earlier survey released in March had growth slowing to 2.6% this year and 2.1% next year.

“The panel turned decidedly more pessimistic about the outlook over the summer with 80% of participants viewing risks to the outlook as tilted to the downside, said Gregory Daco, chief U.S. economist at Oxford Economics and chair of the NABE survey, in a statement. In the June survey 60% of the roughly 50-odd economists saw the risks tilted to the downside.

U.S. trade policy remains the dominant downside risk for the U.S. economy, cited by 53% of the 54 economists surveyed. As a result, NABE outlook has the U.S. trade deficit topping $1 trillion in 2020 — the forecast is $1.022 trillion, up from an expected $981 billion this year — due to a significant slowdown in export growth.

The U.S. has imposed tariffs on $360 billion of Chinese goods, plans to tax nearly all imports from China by the end of the year and has imposed tariffs on some European imports as well. China has retaliated with its own tariffs on U.S. imports and threats of additional tariffs, but even if it carries out those threats, only about 70% of U.S. imports will be affected, according to the Peterson Institute for International Economics.

The median forecast among the economists surveyed by the NABE calls for export growth, adjusted for inflation, to slow from 3% in 2018 to 0.1% in 2019 while import growth slows to 1.8% from 4.4% in 2018. Real growth in exports and imports are forecast to rebound slightly in 2020, up 2.1% and 2.8%, respectively.

U.S. and Chinese trade negotiators are set to resume negotiations this Thursday, and the outlook is not optimistic. According to Bloomberg News, China’s lead negotiator, Vice Premier Liu He, told dignitaries his offer will not include a commitment to reform China’s industrial policy or government subsidies, which are among the key demands from the White House. 

Other highlights of the NABE survey include:

  • Federal budget deficit rising to $969 billion in fiscal 2019, up from $779 billion in fiscal 2018, and to $1.05 trillion in fiscal 2020.
  • Industrial production increasing 0.9% in 2019 and 2020, down from 4% growth in 2018.
  • Payrolls increasing a median 164,000 per month this year and 129,000 in 2020, down from an actual monthly average of 223,000 in 2018
  • Unemployment rate averaging 3.8% in 2018 and 3.7% in 2020 (The jobless rate fell to a record low 3.5% in September)
  • Consumer spending, as measured by real personal consumption expenditures (PCE), increasing 2.6% in 2019 and 2.3% in 2020, down from actual 3% growth in 2018
  • Corporate profits growing 1.7% in 2019, the same increase as in 2018, and 2.7% in 2020
  • Business investment increasing 2.9% in 2019 and 2.1% in 2020, down from projections in June of 4.1% and 3.5%, respectively in the June survey
  • CPI to rising 1.8% in 2019 and 2.1% average in 2020, down from an actual 2.4% increase in 2018

Despite these expectations, the NABE survey gives low odds — just 7% — for a U.S. recession this year and almost even odds — 47% — of a recession starting before year-end 2020. The odds of recession increase to 69% by mid-2021.

Not surprisingly expectations for further rate cuts by the Federal Reserve are somewhat muted. About one-third of the economists surveyed expect one additional rate cut by year-end 2020 while 18% forecast two rate cuts by then and 16% expect even more cuts, ranging between three and five. Twenty-seven percent expect no additional rate cuts through 2020 after the two 25 basis-point cuts this year. The current federal funds rate is set between 1.75% and 2.0%.

The median 10-year Treasury yield is forecast to end 2019 at 1.75%, rising to 2% by the end of 2020 — well below median forecasts of 2.7% and 2.9%, respectively, in the June survey, but above the 1.51% yield at the market close on Friday.

The CME FedWatch tool, based on fed fund futures prices, is currently forecasting an 83% chance of another 25 basis-point Fed rate cut in October and 44% odds of a similar sized cut in December.

The latest NABE outlook, released quarterly, is based on a survey of 54 economists from a variety of institutions, including banks, asset managers, universities and business trade groups, conducted between Sept. 9 and Sept. 16.

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