The current economic expansion shows no signs of faltering, though rising interest rates and trade wars pose risks, a panel of economists and business experts said Thursday in Richmond.
“I think the U.S. economy is performing up to its potential” with low unemployment by historic standards, Ray Owens, a senior economist and research adviser at the Federal Reserve Bank of Richmond, told those attending the Richmond chapter of the Institute of Real Estate Management’s annual forum on the state of the economy.
The event, held at The Jefferson Hotel, featured panelists U.S. Rep. Dave Brat, R-7th; Spencer Levy, America’s head of research and senior economic adviser for commercial real estate firm CBRE; and Chip Watts, president of Watts Realty Co. in Birmingham, Ala., and senior vice president of IREM. Gregory J. Gilligan, business editor at the Richmond Times-Dispatch, served as moderator.
The current economic expansion has lasted nearly 10 years, since the end of the Great Recession, though the rate of economic growth has varied widely, Owens said.
While GDP growth surged in the second quarter of this year at a seasonally adjusted annual rate of 4.1 percent, that may have been due to transitory effects such as an initial boost from tax cuts and increased federal spending, Owens said.
The Fed expects that GDP growth will ultimately slide back toward its 2 percent to 2.25 percent growth trend since the recession ended, he said.
Levy said he was predicting five years ago that the expansion would last only another two years. Now, he doesn’t see much reason to doubt it could go on for another two years.
“Recessions don’t start with a whimper, they start with a thud,” he said. “The thud factors are just not there right now.”
An economic crash in China or a trade war prompted by the Trump administration’s tariffs could bring about a thud, but Levy said he sees little chance of that, and he is not worried about inflation.
Watts said he has already seen the impact of retaliatory tariffs on export industries in Alabama. Levy, however, said the U.S. status as the world’s largest consumer economy gives it significant “leverage” in trade negotiations.
“Ultimately, proximity to the American consumer will lead to an outcome that is better for us than it is today, notwithstanding the high short-term cost we are going to experience,” he said.
Owens noted that the Federal Open Market Committee, which sets the Fed’s monetary policy, has signaled its intent to increase interest rates several times through 2019.
Watts, whose real estate business is family owned, said he is concerned about the potential impact of rising rates on the real estate industry.
“I am looking forward to the next six to nine months, but from there on my view is clouded because I am concerned about interest rates,” he said.
Brat said he thinks the economy “has a lot of positive momentum in front” and sees the Fed’s willingness to raise rates from historic lows as a good sign.
“We have had a sugar high on the monetary side and on the fiscal side for too long,” Brat said. “Now, it is time to get down to the fundamentals.”
“When I go out in the district, the number one issue that I hear is the skilled workforce gap,” Brat said.
“The key to that is K-12 education,” he said. “For me, that is the great next test on the fundamentals side.”