At Least 4 Years out for Charleston!

Economist’s forecast: Next possible recession at least 4 years out

By Ashley Heffernan 
[email protected] 
Published Dec. 2, 2015

The Federal Reserve will likely raise interest rates this month and slowly continue increasing rates thereafter, making 2019 the earliest possible year for another recession, according to a Daniel Island-based economist.

Stephen Slifer, owner of NumberNomics and former U.S. chief economist for Lehman Brothers, hosted his annualEconomic Outlook Conference on Tuesday morning at the Daniel Island Club.

Stephen SliferStephen Slifer
He predicts the Fed will increase the federal funds rate, which is currently at 0%, to about 0.3% by the end of this year and to 1.5% by the end of 2016. To reach a neutral funds rate, Slifer said the Fed will need to eventually increase to 3.5%, which is based on a rate of 1.5% above the target inflation rate of 2%.

“If you’re starting at zero, and you’ve got to get to 3 1/2, and the Fed proceeds as slowly as what it tells us it’s going to do, then it’s going to take until the end of 2018 for this funds rate to get back to neutral,” Slifer said. “If it takes until 2018 to get back to neutral, the last little piece you need to know is that the U.S. economy has never, ever gone into recession until the Fed has pushed rates above that neutral mark.”

Slifer said if it takes until the end of 2018 to get rates back to neutral, he doesn’t see how the economy could go into a recession until 2019 at the earliest.

“Not forecasting a recession, but rates will have risen enough that for the first time in more than a decade we’ve got to start paying some attention,” he said.

Additionally, if the economy’s current expansion period lasts until June 2019, it will be the longest expansion in the country’s history, he said.

“The Fed gets a lot of grief — they’re too tight, they’re too easy — but you know what? If you can produce the longest expansion on record, you ain’t doing too bad a job,” he said. “They are doing pretty well.”

Consumer spending

Americans’ net worth is rising at about a 5% pace, driven by increases in the stock market, climbing home prices and a low ratio of debt to income, Slifer said.

An increased net worth combined with lower gas prices, which he said are poised to continue falling, prompts consumers to spend more money and borrow more money at lower interest rates. Slifer predicts consumer spending to climb 3% in 2016.

“Housing and autos are the two biggest-ticket items in our budget. When we start to feel nervous, these are the places where we tend to see things slow down first, and obviously there’s no hint of that,” he said.

Oil prices

Lower oil prices are a function of better technology in the industry, according to Slifer.

He said the time it takes to drill a rig has been cut in half, and oil production per rig has increased 60% over the past year.

“Oil prices aren’t going back up into this $80 to $110 range. We’ve got more oil than we know what to do with. Oil inventories are at a record-high level. We’re running out of places to store this stuff,” he said, adding that barrels will likely stay in the $30 to $60 range.

Gross domestic product

GDP growth is expected to hover around 2.5% in 2016, based on 3% growth in consumer spending, 4.5% growth in investment spending, a small decline in trade along with flat government spending, according to Slifer. The 2.5% growth is down from the 3.5% growth of much of the 1990s.

“The days of 3.5% GDP growth are over. We’re just not going to see them again anytime soon. More than likely, we’re going to see things that are kind of in the range of where we are now, the low twos, I would suspect,” Slifer said.

The labor force has slowed to about 0.5% growth because so many baby boomers are retiring, Slifer said, and productivity is growing at about a 1.5% rate.

“Guess what: We’re (baby boomers) going to continue to leave the labor force from now until 2029,” he said. “So we are stuck with a half-percent growth in the labor force for the next 15 years. That’s just demographics, folks. It’s just there.”

Private sector

Slifer said technology-based businesses will keep the economy going for the near future.

The oil industry’s new technology, combined with the rise of companies like Uber, access to the cloud, mobile applications, biotechnology, nanotechnology and 3-D printing will regularly boost the economy, he said.

“The private sector is doing just fine. We’ve got to get the government out of the way,” Slifer said. “The biggest business in the United States is government, and they’re working with a model that is last-century. They just don’t get it. Their response is typically the same old response that we’ve gotten for years: Find some way to slap on some more regulations and control that particular industry. To me, if we got government out of the way and let the private sector do its job, we’d be doing just fine and that productivity piece we just talked about would be a lot more rapid.”

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