Gregory Daco, chief U.S. economist, Oxford Economics
Fears that the U.S. was heading into a recession this year, which were always overblown, are now receding because the foundation of the economy — jobs and wages — is solid, says Gregory Daco, chief U.S. economist at Oxford Economics and the leader of the team that won MarketWatch’s Forecaster of the Month contest for March.
Daco contends that markets, forecasters, businesses and households have a “recession bias” that clouds their judgment when headwinds appear on the horizon. This bias could become a self-fulfilling prophecy if businesses and households froze under uncertainty, refraining from investing and spending.
“It’s the inability to see the 50 shades of grey between a 3% economy and a recession,” he wrote in a recent op-ed in The Hill.
The difficulty comes when the economy hits an inflection point and people conclude that if the economy is no longer accelerating, it must be plunging. “We are no longer accelerating,” Daco concurs, “but we are not heading for a recession.”
Since the scare last month when the yield curve briefly inverted, the economic data has gotten a bit better. Job growth and retail sales bounced back from very weak numbers.
It just goes to show that households are in pretty good shape. Job growth remains strong, which should keep wages rising around 3% per year. Confidence is high, and with inflation low, consumer spending should remain strong enough to keep the expansion firmly on track in 2019, Daco says.
Businesses have turned a bit defensive as the fiscal stimulus fades and the uncertainty about global growth and trade increases. Investment is slowing, but hiring remains robust.
Financial markets are not nearly as gloomy as they were in early March. The global and political landscape has improved, with apparent progress (at least temporarily) on both Brexit and China.
Global trade flows are the weakest in five years.
Daco says the world economy is more integrated than it was 10 or 20 years ago. Financial linkages have become more important, and corporate supply chains are more globalized. Oxford is forecasting global growth of 2.7% in 2019, compared with 3.2% in 2018. One key risk is further slowing in global trade, which is already sinking at the fastest pace in five years.
Oxford sees U.S. growth slipping from 2.9% in 2018 to 2.3% in 2019 and to 1.8% in 2020.
According to Oxford’s global macro model, if the global economy slowed by 1%, the U.S. could be thrown into a recession, assuming the Federal Reserve didn’t react. That’s a big assumption. The Fed seems highly attuned to downside risks.
Oxford Economics provides economic forecasting and thematic economic research to clients at large and small corporations, hedge funds, asset managers, banks, academia, and in the large international financial organizations.
Daco’s forecasting team is “a large one in this environment,” he says. The key members of the team include Kathy Bostjancic, Nancy Vanden Houten, Lydia Boussour, Jake McRobie, John Canavan, Tony Stillo and Bob Schwartz.
|Oxford’s forecast||Number as reported*|
|Trade deficit||-$55.9 billion||-$51.1 billion|
|Consumer price index||0.2%||0.2%|
|Housing starts||1.220 million||1.162 million|
|Durable goods orders||-3.2%||-1.6%|
|Consumer confidence index||131.0||124.1|
|New home sales||628,000||667,000|
|*Subject to revisions|
In the March contest, Daco’s team had the most accurate forecasts among 43 teams on three of the 10 indicators we track in the contest: the ISM manufacturing index, the consumer price index, and industrial production. Their forecasts for the trade deficit and the consumer confidence index were among the 10 most accurate.
The runners-up in the March contest were Ian Shepherson of Pantheon Macroeconomics, Christophe Barraud of Market Securities, Matthew Luzzetti’s team at Deutsche Bank, and Seth Carpenter’s team at UBS.
The median forecasts that MarketWatch publishes each week in the economic calendar come from the forecasts of the 15 economists who have scored the highest in our contest over the past 12 months, as well as the forecasts of the most recent winner of the Forecaster of the Month contest.
The economists in our consensus forecast are: Christophe Barraud of Market Securities, Jim O’Sullivan of High Frequency Economics, Joerg Angele of Raiffeisen Bank International, Ryan Sweet of Moody’s Analytics, Michelle Girard’s team at NatWest Markets, Richard Moody of Regions Financial, Michael Feroli at J.P. Morgan Chase, Brian Wesbury and Bob Stein of First Trust, Andrew Hollenhorst at Citigroup, Avery Shenfeld’s team at CIBC, Ian Shepherdson of Pantheon Macro, Seth Carpenter’s team at UBS, Peter Morici of the University of Maryland, Douglas Porter’s team at BMO, Lou Crandall at Wrightson ICAP, and Gregory Daco’s team at Oxford Economics.
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