If things are so good, why are we still so worried? Business, in general, made it through 2019 in better shape than prognosticators had predicted. Inflation remained in check, unemployment was at record lows, stocks hovered at record highs and consumer confidence remained strong. But despite all the good economic news, many industries remained challenged on several fronts, from the fallout of trade wars and unusually harsh weather to a continued shortage of qualified employees. Sectors from manufacturing to agriculture bore the brunt of the downturn. On top of that, the specter of a recession continues to hover as the nation prepares to enter its most contentious presidential election in memory. Throw in the impeachment of President Donald Trump and the potential threat of war with Iran, and economic angst for the new year continues to grow.
How will the national economy and suburban business fare in 2020? We talked to three local experts -- Gus Faucher, chief economist for PNC Bank in Chicago; Jeffrey Korzenik, chief investment strategist at Fifth/Third Bank in Chicago; and Steve Clingen, senior vice president, C & I Group Head, at Republic Bank in Oak Brook -- to get their take for the upcoming year.
There has been a lot of talk about a recession occurring this year. Do you believe we are heading into a recession?
Other positives for consumer spending heading into 2020 include low inflation; rising household wealth thanks to increasing home values and a booming stock market; a high savings rate; very low interest rates; and low debt relative to household income.
Economic growth will be somewhat slower in 2020 than in 2019, however. Drags on growth this year will include business uncertainty given trade tensions between the US and China, and our other major trading partners; slower global economic growth; a tight job market that makes it more difficult for businesses to hire; and the waning positive impact of the corporate and personal income tax cuts that took effect in 2018.
-- Gus Faucher, chief economist for PNC Bank in Chicago
That being said, it is important for investors and business owners to recognize we are late in the economic cycle. The labor force is essentially at "full employment," which will constrain the pace of growth in the United States to less than 2% for the year. Capital investment, which could make that limited workforce go farther, is being held back by the uncertainties of an election year and trade disputes. Ultimately, these conditions plant the seeds for the next recession, but we simply have more time and room to grow before we get there.
We anticipate that 2020 will be a transition year. Businesses and investors can prosper, but the stresses and strains of a late cycle economy, e.g. a modest pickup in inflation, pressure on profit margins, slowing growth and credit constrains will all be visible by the end of next year.
-- Jeffrey Korzenik, Chief Investment Strategist, Fifth/Third Bank in Chicago
-- Steve Clingen, senior vice president, C & I Group Head, Republic Bank in Oak Brook
How do you see the presidential election and other global events -- like the escalation of tensions between the U.S. and Iran -- affecting the economy in 2020?
Respondents we spoke with were quite aware that the Fed prefers to not influence an election with rate adjustments. Most business owners chose not to comment on politics, only to say conditions during the 2020 election year will bring unwelcome uncertainty to the markets, taxes and related planning for their businesses.
The business owners we spoke with are certainly keeping an eye on what's going on in the Middle East, like the rest of the world, but simply view it as another unwelcome distraction, contributing to uncertainty in the marketplace, which no one likes. As everyone knows, it has led to increased oil prices, at a time when the economy is slowing a bit (stagflation). They reminded me that, as always, they prefer to focus on their customers, employees, and key suppliers -- and always mindful of current and forecasted economic conditions.
-- Steve Clingen
In addition, the nature of the US government makes it difficult to implement big changes that would have a large impact on economic growth. After the 2020 election, Democrats are likely to maintain control of the House of Representatives, while Republicans will likely still run the Senate, no matter who wins the presidency. This divided control will prevent any big policy swings that would have a substantial impact on economic growth.
Where the election might have more of an effect is the stock market. Plans to raise or lower corporate income tax cuts might influence the overall stock market, while some specific industries might benefit more (or less) depending on which party holds the White House.
-- Gus Faucher
Despite slowdowns in some sectors, unemployment remains at low levels and employers are struggling to find enough qualified workers. Will this continue in 2020?
Of course, changes in immigration policy could alleviate some of these pressures. Even this may be an incomplete solution; fertility rates (a longer-term view than a single period's birthrate) are declining globally. The worker challenge is an international challenge.
We see business increasingly exploring nontraditional labor pools: attracting or retaining older workers, facilitating the return of parents who left to raise families, hiring people with disabilities and those marginalized or underemployed due to criminal records. Nontraditional talent acquisition and development will be the skill that determines the success of business leaders in the decades ahead.
-- Jeffrey Korzenik
-- Steve Clingen
The good news is that this means that businesses will continue to raise pay throughout 2020, boosting employees' paychecks. With workers scarce and businesses competing to hire, wage growth has been well above inflation in recent years, giving households greater purchasing power. However, higher wages will put pressure on business profits.
-- Gus Faucher
Closer to home, Illinois' pension and budget issues are still affecting the business climate, as well as its ability to draw new business to the state. Do you see any improvement in the coming year?
-- Gus Faucher
What are one or two things business owners can do to prepare themselves for any headwinds expected in the new year?
-- Gus Faucher
It is late enough in the economic cycle that many businesses are already preparing for the downturn. Our analysis suggests that the eventual recession is likely to be modest by historical standards, so businesses should also prepare for the upturn with growth plans that might include acquisitions, geographic expansion or new products and services. Those businesses preparing not just for a downturn, but also for the next upturn, will have a significant advantage over competitors.
-- Jeffrey Korzenik
-- Steve Clingen
Guest Blogger: Richard Klicki - https://www.dhbusinessledger.com/business/20200127/whats-in-store-for-2020-economic-experts-share-their-predictions