Economist: No recession before 2021

July 31 2018

By Richard Bammer, The Reporter, Vacaville

Posted: 07/26/18, 6:33 PM PDT | Updated: 4 days ago

A noted North Bay economist said most of his colleagues do not envision a recession before 2021.

Using several graphs of economic indicators, including the bond yield curve, Robert Eyler said the “flattening” of the curve, when short-term interest rates exceed long-term ones, has been a predictor for nine of the last 10 recessions — and the curve currently shows signs of flattening.

The question is, will it “put pressure on the credit markets?” he wondered during Thursday’s Solano Economic Development Corporation economic forum breakfast Thursday a the Hilton Garden Inn in Fairfield.

In a wide-ranging, 45-minute speech, Eyler, a Sonoma State University professor and president and head of research at Economic Forensics and Analytics in Petaluma, offered an overview of the U.S., regional and local economies, his computer-aided slide presentation fast-moving and detailed.

In his opening remarks, a photo of President Donald Trump using his cellphone projected on the screen, Eyler quipped, “As an economist, the president should not be a focal point,” the statement prompting some smiles among the 250 people — business owners and local elected officials to school district leaders and directors of nonprofits — in attendance.

Using a “trade war” cartoon showing a skier about to fly off a cliff, he added that economists are “watching and waiting,” wondering if Trump’s newly launched trade war, informed by tit-for-tat tariffs among allies, such as the European Union, and competitors, such as China, will affect global economic markets.

And Trump’s 2017 $1.5 trillion Tax Cuts and Jobs Act, he said, has neither “translated” into consumer growth nor increases in the GDP, the sum of all goods and services produced within U.S. borders, calculated quarterly by the Commerce Department.

For the next several years, unemployment rates are expected to hold relatively steady at 4 percent and GDP growth will fall slightly, from 2.8 percent this year to 2 percent in 2021, he point out.

On a more positive note, the author of two books and a visiting scholar at Stanford University, Eyler showed a graph of the U.S. stock market’s activity in the last 10 years, the line denoting an overall slow but upward rise, with a sharp dip indicating the 2008-09 Great Recession.

Equity markets, the Standard & Poor’s 500, as does the bond yield curve, indicate a recession may be in the offing, he noted, showing a graphic with 10-year-old data.

Still, he cautioned that if interest rates rise faster than expected, the stock market may get “nervous.”

Analysts see “looming headwinds” on Wall Street “but not full headwinds,” said Eyler, who earned a doctoral degree from the University of California, Davis.

Of corporate debt-to-GDP, he showed a graph indicating a credit cycle peak, another predictor of a looming recession, with red arrows pointing to 1991, 2002 and 2008 recessions, and a peak possibly being reached this year. Still, any pending recession is likely to be “mild,” he noted.

Deficits as a percentage of GDP are projected to increase over the next few years, then largely stabilize, said Eyler, wearing a dark suit, speaking quickly and gesturing often with his right hand to underscore his points, slide after slide.

Moving on to statewide data, he noted the jobless rates for the past 18 years, with the number reaching a whopping 12 percent at the height of the Great Recession in 2009, and now registering 4.1 percent, the lowest point in state history.

Statewide, the Riverside-San Bernardino area has experienced the greatest job growth since the Great Recession, followed by the San Francisco and San Jose regions, with Solano showing some of the least growth, exceeded only by Merced, Santa Cruz-Watsonville and Napa.

Job sectors expected to see robust growth from this year to 2026 include professional services, information, finance, leisure, construction, and health and education, statewide trends that are reflected in the long-term (to 2026) jobs forecast for Solano County. Farm jobs, however, will decrease by 2.6 percent, due primarily to increased mechanization, said Eyler.

Both commercial real estate prices (by square feet) and vacancy rates have generally decreased in the last dozen years, from about $4.50 to $2 per square foot and from 13 percent to 6 percent, respectively, during the last eight years, he noted, with the data supplied by Colliers International.

A flurry of slides indicated the following, Eyler said: The county’s population growth has largely stabilized, at about 1 percent, during the past 15 years; the county’s high school graduation rates have increased over the years, generally exceeding the statewide rate for the past several years; commercial and residential building permits have generally fallen during the past 12 years, a sign of limited growth; no surprise, median home prices are once again on the rise in the region, but, Eyler said, the homeowners and the real estate industry are still recovering from “lost wealth” since a peak in 2005 and reaching a low point in 2010.

But “Housing prices have some real room to grow,” he added.

In his summary, he said Solano County faces several challenges and an opportunity, and they are 1) poverty rates are rising, reflecting the statewide trend; 2) the housing crunch and slower job growth means more commuters into core Bay Area workplaces; 3) “slow-moving” but not necessarily stagnant wage and income levels not keeping up with the cost of living; and 4), the opportunity, a “focus on countywide economic development of higher-wage jobs as change comes to the greater Bay Area.”

Eyler noted “four major areas to watch” in Solano: the water supply, necessary for continued growth, the expanding marijuana industry, the availability of housing, and what he called in a follow-up interview, “wage-growing” jobs.