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Economist Predicts Weakened Growth for Next 12 Months, But No U.S. and EU Recession

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December 9, 2019

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NEW YORK -- In a speech in Lower Manhattan during the annual ACT conference in October, Wells Fargo Securities Economist Michael Pugliese predicts the U.S. economy growing by inches.

Economist Michael Pugliese gives ACT attendees his predictions on the economies around the world.

“Our outlook the next 12 months is moderate growth (and) no recession,” Pugliese says to about 400 attendees on the New York University campus.

“I hope he’s right” about no recession, TSG Finishing CEO Brian Rosenstein says.

Economist Pugliese focused on several economic indicators he believes point to moderate growth in the next year: the U.S. has the largest deficit of the world’s major developed economies at – 4% of gross domestic product. The GDP is the monetary value of all finished goods and services made within a country during a specific period.

Although it would a first seem negative, Pugliese says the U.S. budget deficit in the near term may lead to faster economic growth because of lower taxes and greater government spending, which would be associated with better employment and more investment.

Another positive indicator is employees saw their paychecks increase: real-wage growth increased this year on an inflation-adjusted basis, especially for workers in lower-paying industries, which increased by 2.5% in July.

In addition, while the U.S. household debt is still increasing, the household debt-to-disposable income ratio has increased. The household saving rate is 8.1%.

“This is a positive trend,” he says.

Wages are expected to increase because of a shrinking labor pool. The U.S. prime-age population, or those 25 to 54, has remained flat since 2008.
Overall, the U.S. economic growth will slow from 1.5% to 2% in the next year, while core inflation has fallen below 2% since the end of 2018, so no recession is expected, Pugliese said.


“We don’t expect a broad recession in Europe, China or another country,” Pugliese says in an interview. “We have seen growth slow in other parts of the world as in the U.S., and it’s been more pronounced in Europe the past year than in the U.S.”

The European Union, he forecasts, will experience slower growth than the U.S., or from 1%-2%.

“The important take-away is directionally everyone is moving down, generally foreign economies have been faster down than in the U.S.,” Pugliese says.

China and India, as developing economies, will continue to grow, but at a slower pace.

“China as a developing country, and generally grows more than us, about 6%,” he says. “India is considered an emerging market. …Again, they have a catch up to industrialize to the U.S. There you too see things slow down from a year ago. India grew 7.4% in 2018 and we expect 5.5% in 2019. … Certainly, things have slowed down but that’s an economy that’s expanding.”

Recessions are not necessarily inevitable. Pugliese points out Australia has had more than 25 years without a recession.

There’s a popular economist’s saying that compares economies to a person’s body: Business expansions don’t die of old age but are susceptible to more risk.
Pugliese says he encounters a common misconception when forecasting economic trends: People cherry-pick certain data to support their argument.

“I find some people gravitate to data that supports their already-held view, such as the stock market is too high or too low, but data is a messy thing,” he says. “Think about it like a little data is a pixel in a larger picture, but when you put all the pixels together, you can start to put the whole picture together.”


Although the U.S. trade deficit with China is relatively large when compared to America’s other major trading partners, only a small share of U.S. products is derived from Chinese demand.

Simply, China relies more on exports to the U.S., or $481 billion in 2018, than the U.S. on exports to China, or $120 billion.

The U.S. exports $2.5 trillion a year in goods and services, therefore it has a small “export exposure” with China, Pugliese says.

He pointed out that all countries face slower economic growth in the next year including China, which must balance the demands of meeting economic targets while preventing debt imbalances.

“[China] has eased monetary policy to stimulate their growth,” Pugliese says. “Their growth will continue to downshift to a more sustainable pace."


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