Leading economic experts took on the enormous task of predicting this year’s economy on Feb. 10 at the 2020 Economic Forecast sponsored by the University of Delaware’s Alfred Lerner College of Business and Economics’ Center for Economic Education and Entrepreneurship (CEEE) and Lyons Companies. Video from the event is available on the Lerner College Facebook page.
Led by keynote speaker Patrick Harker, president and chief executive officer of the Federal Reserve Bank of Philadelphia, the day’s speakers included Michael K. Farr, author, CNBC contributor and president of Farr, Miller & Washington, LLC and Dan Mahaffee, senior vice president and director of policy at the Center for the Study of the Presidency and Congress. Nick Timiraos, national economic correspondent for the Wall Street Journal, served as the moderator for the panel discussion following the speaker’s presentations.
Top on their list? The potential economic effects of the coronavirus outbreak, the impact of the 2020 presidential campaigns and election and the growing fear of artificial intelligence replacing human workers.
2020: Time for Change in the Labor Market
In his keynote address, Harker shared his outlook on both the national and local levels. His primary focus was on the potential for changes in the labor market and he addressed both immediate and long-term issues and offered potential solutions.
The National Economy
“My positive view about the consumer contrasts with concerns about business investment,” Harker said. “Spending on new plants, equipment and intellectual property is lagging and the uncertainty attached to fiscal and other policies has continued to hold spending back, so too have international developments including global slowdown, trade uncertainty and rising geopolitical tensions.”
- Research done at the Philadelphia Fed’s Consumer Finance Institute (CSI) shows that lower rates in 2019 resulted in a large number of borrowers who are in a position to refinance their residential mortgages. According to Harker, mortgage refinancing fuels consumption.
- Over the next two years, Harker predicts an estimated $11.2 billion in added consumption across the economy from refinancing activity. On an individual level, an average homeowner would have about $2,000 to spend in extra consumption within the first year after refinancing.
- Although it is too soon to fully predict the effects of the coronavirus, the negative effects on the Chinese economy and international travel and potential spillover the U.S. economy is something he is watching. As the outbreaks continue, the economic impact of this virus is becoming more immediate.
- Although the Fed has not quite met the 2% inflation target, he believes they are on track to get there. The goal of this inflation target is to anchor long-term inflation expectations and remain consistent with price stability while allowing room to cut interest rates as needed.
- At the January Federal Open Market Commission meeting, the Committee decided unanimously to hold the Fed fund’s rate target stable in the range of one-and-a-half to one-and-three quarters percent. Harker believes that the Fed fund’s rate should be held steady for a while to watch how developments and data unfold before taking more action.
The Local Economy
“Let’s turn to Delaware and the Philadelphia region,” Harker continued. “Their economic outlook is more mixed than the national one.”
- Over the past five years, Delaware employment grew less than 1% per year, which is lower than the 1.5% posted for the nation, although there has been a pickup in recent months. According to Harker, northern parts of Delaware seem to be doing better than southern parts in terms of growth.
- Delaware’s unemployment rate was 3.9% in December, slightly higher than the national figure, and unemployment again in the southern regions tends to be higher. The professional business service sector has seen a slight decline in the past year.
- In the broader Philadelphia metro area, encompassing parts of Delaware, Pennsylvania, New Jersey and Maryland, job growth has slowed to 1% annually. In general, the Philadelphia metro area’s job growth since the last recession has been below that of the nation during the same period.
- Economists at the Philadelphia Fed have been looking into the amount of time needed to fill positions in the Philadelphia metro area and metro areas across the S. In this region, it took 41 days on average to fill an open position in contrast to the national average of 37 days. The Philadelphia region is ranked 47th out of the 50 largest metro areas for time needed to fill a job opening.
The Labor Market
“In my view, with the labor market the tightest it’s been in decades,” Harker said. “Now is the time to create new approaches to how companies hire, train and retain employees and for how we in the United States can create career paths for all people who want to work.”
- The 7, 2020 employment report showed that 225,000 net new jobs were added in January compared to the monthly average of 175,000 net new jobs for all of 2019. In addition, hourly wages increased 3.1% from last January and the unemployment rate across the country stood at 3.6%.
- Harker expects the trend to return to creating about 100,000 net new jobs per month. According to Harker, 100,000 net new jobs per month is more than enough to keep pace with the expected growth in the S. labor market which is why he expects the unemployment rate to stay below 4% for the next couple of years.
- Both locally and nationally, the tight labor market has put employers in a challenging position as they struggle to fill vacancies. However, Harker suggests viewing this as an opportunity to reevaluate current practices to invent new ways to attract workers and enhance their chances of success by rethinking job requirements and ways of training employees.
- Harker addressed growing national debate and fears over whether artificial intelligence will make workforce development unnecessary. He refuted this argument, stating that the occupations that are currently hardest to fill are those least at risk of automation that require uniquely human skills such as nurses and retail store managers.
The Economic Impact of Politics
Following Harker’s address, Mahaffee and Farr had an intense discussion that focused primarily on the potential economic effects of the 2020 presidential campaigns and the results of the November election. They also discussed the potential impact of the coronavirus and more generally the state of trade and foreign affairs.
Mahaffee stated that, “[The State of the Union address] is a perfect example of the fact that our 2020 politics will probably be the most vitriolic and rancorous that we have seen in our lifetimes. And it’s a combination of reality TV, politics, social media, closed media environments on the right and partisan media on the left. This has all created a culture war industrial complex that is going to be firing with all cylinders into 2020.”
This discussion was followed by Farr’s presentation on the current state of the U.S. economy, followed by his predictions for the coming years. He agreed with many of Harker’s comments on the labor market and national economy, adding more commentary on global markets and interest rates.
“Please never bet against the United States,” Farr said. “We have a free capitalistic society where innovation is rewarded. We have a stable democratic government. Well, not everybody in it is stable, but in general the thing is stable. We have strong contracts and property laws. The Federal Reserve, you all are very stable. [We have] an educated workforce and inflation and interest rates are very low and we have a much more competitive corporate tax rate [than other countries].”
After Farr’s presentation, Timiraos sat down with all three speakers to follow-up on points made during their presentations, as well as field questions from the audience on topics ranging from trade wars to the Fed’s choices to money management. The panel concluded with the Vice President at Lyons Companies, David Lyons, Jr., thanking the speakers, organizers and audience of the 2020 Economic Forecast for making this a great event and encouraging continued discussion during the event’s reception.
Recognizing an Outstanding Educator
At the 2020 Economic Forecast event Delaware State Bank Commissioner Robert A. Glen was presented with the 2020 James B. O’Neill Award. This award, named in honor of past CEEE Director and Master of Arts in Economics and Entrepreneurship for Educators program founder Professor Emeritus Jim O’Neill, recognized Glen as an individual who has made substantial contributions in promoting economic, personal finance and entrepreneurship education.
“Robert has served under a number of governors, a clear indication of his effectiveness, loyalty and interest in serving our wonderful state,” said Director of the CEEE Carlos Asarta. “In fact, I came to UD seven years ago, and my first event was one where he was there helping to thank teachers for the work that they do with the Bank At School program. His many contributions have been instrumental in furthering the mission of the UD Center for Economic Education and Entrepreneurship, helping us better prepare students for the financial opportunities and challenges that lie ahead.”