GERRY:
WITH ME NOW TO DISCUSS THE STATE
WITH ME NOW TO DISCUSS THE STATO
WITH ME NOW TO DISCUSS THE STATF
THE ECONOMY AND WHAT THE FUTURE
MIGHT HOLD IS THE CHIEF
ECONOMIST AT GRANT THORNTON IN
CHICAGO.
DIANE, THANK YOU VERY MUCH FOR
JOINING US.
>> GREAT TO BE HERE.
GERRY: THIS EXPANSION IS ALMOST
TEN YEARS OLD.
WE'VE HAD A YEAR, YEAR AND A
HALF OR SO OF RELATIVELY STRONG
GROWTH.
WHY SHOULD WE BE CONCERNED THAT
IT MIGHT BE COMING TO AN END?
>> WELL, WHAT WE'RE STARTING TO
SEE IS, YOU KNOW, RECESSIONS ARE
ONE OF THOSE HARD THINGS TO
PREDICT BECAUSE YOU NEVER KNOW
WHICH STRAW ON THE CAMEL'S BACK
IS GOING TO BREAK THE CAMEL'S
BACK, BUT THE PILE OF STRAWS IS
STARTING TO MOUNT, AND NEW
ZEALAND AN EASY LIST TO TICK
OFF, ONE IS THE STRONG DOLLAR
MAKING IT HARDER FOR OUR
COMPANIES TO EXPORT ABROAD.
WEAKER GROWTH ABROAD, MOST
NOTABLY, CHINA.
CHINA'S THE SECOND LARGEST
ECONOMY IN THE WORLD.
THE IT'S A MAJOR MARKET FOR
EUROPE, JAPAN AND FOR THE U.S.,
AND AS THEY SOFTEN, THEY HAVE
KNOCKOFF EFFECTS THROUGHOUT
ALMOST EVERY DEVELOPED AND
DEVELOPING ECONOMY IN THE WORLD.
AND THAT'S HARD TOTURE IN OUR
MODELS -- TO CAPTURE IN OUR
MODELS WHEN WE JUST LOOK AT
THESE TARIFF WARS.
THERE'S ALSO THE ONGOING
STRUGGLE ON TARIFFS AND HOW THAT
MAY WORK INTO PRICE INCREASES
DOWN THE ROAD, STAGFLATIONARY
KINDS OF PRESSURES.
WE'VE GOT MOUNTING CORPORATE
DEBT THAT THE FEDERAL RESERVE
AND THE OCC HAS FIRED A WARNING
SHOT ABOVE THE BOW OF MANY BANKS
HERE.
SAYING, LISTEN, WE'RE WORRIED
ABOUT HOW MUCH LEVERAGE IS OUT
THERE.
A LOT OF COMPANIES HAVE EXTENDED
AND PRETENDED IN THIS LOW
INTEREST RATE ENVIRONMENT, AND
EFFECTIVELY BY THE END OF THIS
YEAR WILL SEE A DOUBLING OF
INTEREST EXPENSE IN ONE YEAR WAS
THE FED WILL DO ITS -- BECAUSE
THE FED WILL DO ITS FOURTH RATE
HIKE NEXT WEEK.
THE WEAKNESS WE'VE SEEN IN
HOUSING, NEVER RECOVERED FROM
THE CRISIS, VOLUME DID NOT
RECOVER FROM THE CRISIS, AND NOW
WE'RE STARTING TO SEE A
SOFTENING.
THE HOUSING MARKET CAN SOFTEN AS
MUCH AS A YEAR AND A HALF BEFORE
THE ECONOMY SLIPS INTO
RECESSION, AND IT'S ALREADY BEEN
GOING ON SIX MONTHS WE ARE
WEAKENING, AND WE ARE DOWN ON
BOTH SALES AND, ACTUALLY, STARTS
FROM A YEAR AGO.
BEARLY: THE KIND OF IMBALANCES
THAT WE DO SEE, ESPECIALLY
INFLATION WHICH OFTEN PICKS UP
AS DEMAND IS STRONG WITH
UNEMPLOYMENT SO LOW, WE HAVEN'T
REALLY SEEN THAT, HAVE WE, THIS
TIME AROUND.
SO IF THE ECONOMY IS GOING TO BE
DERAILED, IT'S NOT GOING TO BE
SORT OF A TYPICAL PATTERN THAT
WE'VE SEEN IN THE PAST.
>> EXACTLY.
AS WE OFTEN SAY, EXPANSIONS
DON'T TIE OF OLD AGE -- DON'T
DIE OF OLD AGE, USUALLY THE FED
KILLS THEM.
IN FACT, WHAT THE FED IS DOING
NOW IS ALTHOUGH THEIR GOING TO
RAISE RATES ONE MORE TIME NEXT
WEEK AS THEY MOVE IN DECEMBER,
THEY'RE SETTING UP TIME TO PAUSE
BECAUSE THEY ARE CONCERNED ABOUT
THE SLOWDOWN IN GROWTH AND, IN
FACT, INFLATION HASN'T FLARED.
AND THAT'S BEEN SORT OF A SAVING
GRACE.
IT'S WARMED UP A LITTLE BIT, AND
THEY LIKE THE WARMING TREND
BECAUSE IT WAS TOO COOL.
THIS IS -- NOW WE'VE GOT AN
ECONOMY THAT'S SHOWING SOME
LEVEL OF HEAT.
AND SOME HEAT ON WAGES, WHICH IS
SOMETHING THE FED WELCOMES.
BUT YOU HAVE TO THINK ABOUT THE
FED AS SORT OF YOUR COACH IN A
MARATHON.
THIS IS NOW A MARATHON OF AN
EXPANSION.
THEIR GOAL HAS BEEN TO PACE
THAIRSES AS THE ECONOMY
ACCELERATED IN 2018, THEY WANTED
TO MAKE SURE WE DIDN'T TIRE OUT
TOO SOON N. 2019 THEY'LL BE
TRYING TO STRETCH THAT FINISH
LINE OUT AND MAKE IT I DON'T
THINKER.
GERRY: THE FED'S BEEN RAISING
INTEREST RATES STEADILY, THREE
OR FOUR A YEAR, SO WE'RE STILL
AT A RELATIVELY LOWER LEVEL OF
RATES.
EVERYBODY EXPECTS THEM TO RAISE
RATES NEXT WEEK.
AFTER THAT, THOUGH, WHAT SHOULD
THEY DO?
WHAT'S NEXT?
>> WELL, I HAVE ONLY TWO RATE
HIKES IN 2019, AND I AM
EXPECTING A RECESSION IN EARLY
2020 WITH THE ECONOMY WEAKENING
SIGNIFICANTLY IN THE FOURTH
QUARTER OF THE --
>> EVEN IN 2019, AS EARLY AS
2019?
>> AS EARLY AS THE -- YEAH, A
YEAR FROM NOW.
I DO EXPECT THE UNEMPLOYMENT
RATE, AFTER EDGING ALL THE WAY
DOWN TO 3.4% BY MID 2019, I
THINK WE'RE GOING TO SEE ET
CREEP UP A BIT.
AND ALTHOUGH THAT'S STILL LOW,
AS WE KNOW, IT DOESN'T INCLUDE
AS MANY PEOPLE FROM THE
SIDELINES AS WE ONCE LIKED, AND
IT HASN'T PRODUCED THE KINDS OF
WAGE GAINS WE'D LIKE TO SEE.
YOU CERTAINLY WANT THE EXPANSION
TO GO ON AS LONG AS POSSIBLE,