The United States economic growth has been on a modest increase each year since the end of the last recession in 2009. The country, nevertheless, has not reached a 3 per cent annual growth over the past decade. The first two quarters of 2019 experienced a 2.6 per cent annual GDP growth (Federal Open Market Committee, 2019). Compared to earlier periods, the current growth is below capacity.
It is vital to predict how the economy will perform in 2020. The present paper examines the different economic indicators such as the GDP, inflation, the unemployment rate, the interest rates, prices, investment, and employment to predict the economic situation of the United States in 2020.
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Based on recent data, the GDP growth will reduce to 2 per cent in 2020 from the current 2.6 per cent in 2019 (Federal Open Market Committee, 2019) due to the ongoing trade war between the United States and other countries including China, which is also a vital part of the current government’s economic policy. The trade war has increased the prices of consumer products, particularly those using aluminium and steel that were mostly targeted with tariffs during the trade war. The prices of imported clothe hangers, computer tool makers and chips, and heavy-equipment materials have also increased. The elimination of cheap imported steel can lead to high vehicle costs due to the high prices of U.S made steel (York, 2019). High prices increase the cost of producing goods, which may compel companies to reduce workers or shift their production to other countries to remain profitable. Tariffs on U.S products increase their cost, which may compel companies to lay off employees to maintain competitive prices. The trade war slows economic growth by leading to unemployment.
Regarding unemployment, the rate of unemployment will stay at 3.7 per cent in 2020 (Federal Open Market Committee, 2019). Food-service and low-paying retail sectors are the ones experiencing job growth. Overall, structural unemployment has rose, which is difficult to correct compared to the official unemployment rate. The real unemployment rate will be 7.4 per cent in 2020, which is lower than the current rate of 8.1 per cent and better than the previous years (Trading Economics, 2019). The federal government is also tightening the price inflation to its 2 per cent target. Inflation will increase from 1.5 per cent in 2019 to 1.9 per cent in 2020 due to rising prices brought about by the trade war (Federal Open Market Committee, 2019). The core inflation rate will also remain at 1.9 per cent in 2020. The current interest rate is 1.75 percent with expectations for further reductions or maintenance of the same rate during 2020 as growth slows (Federal Open Market Committee, 2019). The average oil price is expected to stay at $60 per barrel in 2020. (Trading Economics, 2019)
Manufacturing will also slow to 2.4 percent in 2020 from the current 3.9 percent in 2019 (Federal Open Market Committee, 2019). Consumer spending has been the main contributor to the economic growth in 2019, and the trend is expected to continue towards the end of 2019 due to solid growth in jobs and increases in wages. Job growth will, however, be slow in 2020 (139,000 jobs per month compared to 184,000 jobs per month in 2019), which may reduce consumer spending and reduce the overall economic growth (Trading Economics, 2019). Real consumer spending is expected to remain 2.6 percent, which is the same as the current rate. Real person consumption spending is expected to reduce to 1.8 percent in 2020. Businesses are also expected to reduce their spending on structures and equipment in 2020 with a projected capital spending of 0.8 percent compared to the current 2.1 percent (Trading Economics, 2019). Fixed business investment is expected to reduce to 2.5 percent in 2020 while wages are expected to slightly increase in general by nearly 4 percent (Trading Economics, 2019). Residential investment is also expected to expand by nearly 2 percent in 2020, which is more than the current nearly 1 percent, which will positively affect economic growth (Trading Economics, 2019). The current mortgage rates have reduced with high house price, which is expected to continue into 2020.
The existing economic indicators such as low and decreasing interest rate, modest economic growth, and stable prices demonstrate a slight reduction in economic growth that will likely stay at 2 percent. Shocks such as an increase in oil prices, terrorist attacks, and oil embargo can adversely affect the 2020 economic outlook. Besides, the continuing tariff and trade war between the United States and other countries including mainly China may negatively affect economic growth due to increased costs of products and layoffs. Robust job growth has led to a low unemployment rate with expectations that the rate will stay below 4 percent in 2020 (at 3.7 percent), which is near historic lows and indicates a robust employment sector. The high house prices also indicate an excellent economic situation. The combination of these factors, nevertheless, indicates a slow economic growth in 2020 as the trade war continues to negatively affect investment, which in turn will lead to slow job creation and household expenditures. The tariff measures already implemented are likely to stay until 2020 without additional measures. Substantial further tariffs on products from overseas may lead to further increases in prices and reduced economic growth. The low-interest-rate can help growth through low costs of borrowing. The set interest rate affects short-term interest rates such as the prime rate of banks, credit card rates, and adjustable-rate loans.
References
Federal Open Market Committee. (2019, September 18). September 18, 2019: FOMC Projections materials, accessible version. Retrieved November 30, 2019, from https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20190918.htm.
Trading Economics. (2019). United States - Economic Forecasts - 2019-2021 Outlook. Retrieved November 30, 2019, from https://tradingeconomics.com/united-states/forecast .
York, E. (2019, November 20). Tracking the Economic Impact of Tariffs. Retrieved November 30, 2019, from https://taxfoundation.org/tariffs-trump-trade-war/.
