Economist to Cape group: Expansion will continue for a few more years

If you ask a dozen economists to forecast where the nation’s economy is headed, chances are you’ll get a dozen different answers. Some will say the country is headed for a recession in the next 12 to 18 months, others will say prosperity will last well into the next decade, while others will predict a global economic collapse within five years.

When it comes to economic forecasting, the only thing that’s certain is the economy will change over time, but how it will change is the big question.

Scott Colbert has made it his business to know.

As chief economist of Commerce Trust Co., Colbert has direct investment responsibilities for more than $19 billion in fixed income assets and it’s probably not an exaggeration to say fortunes have been built on the basis of his economic insights.

Colbert was in Cape Girardeau on Tuesday to meet with Commerce Trust clients and others at a luncheon hosted by the investment firm at Isle Casino Cape Girardeau.

Based on his analysis of various economic indicators such as employment trends, the housing market, manufacturing output and the overall state of the world’s economy, Colbert told his audience the nation’s current economic expansion will likely continue at least four more years and possibly longer. After that, the U.S. economy will probably face another recession as it typically has over the past six or seven decades.

“The key point is we think this economic expansion, which is going to be 10 years old soon and will be as long as any economic expansion we’ve ever had, will continue on for longer than most people think,” Colbert said. “So Commerce is more optimistic than the consensus forecast.”

Economic growth has slowed in 2019 because of several factors such as the first-quarter government shutdown, unseasonably cold weather, U.S. trade skirmishes and Brexit, “but a recession is not imminent,” Colbert said.

He pointed to four main factors for his growth prediction. One reason, he said, has to do with interest rates and the cost of borrowing money.

“We see clearly that the Fed is on ‘perma pause’ meaning they’re not raising rates anymore. They stopped raising rates in December, which was the ninth time during this current recovery,” he said. “We think it’s very unlikely there will be another rate hike anytime soon.”

Interest rates, he said, also factor in to the next factor.

“Because interest rates have paused and because global interest rates are so low — not at record low levels but very reasonable — that’s not stopping anybody from borrowing.”

The third factor relates to employment and job expansion.

“This is an economy that always makes forward progress if we have jobs, and there is no hint in the forward indicators that we’re losing any jobs overall,” Colbert said. “There might be a job slowdown, but we are certainly not going backward.” According to U.S. Bureau of Labor Statistics, the nation has recorded 103 consecutive months of job growth since January 2010, averaging 189,000 new jobs a month — or 20 million — over that period.

“And finally, from a financial market perspective, while stocks are at all-time highs, the recent tax cut by the Trump Administration has boosted earnings and basically brought stock valuations much closer to average because of that tax cut,” Colbert said. “And so, while stocks are clearly expensive, at their highest levels ever, their valuation really isn’t too bad, especially relative to your alternative and your alternative is, in general, a 10-year corporate bond or a 10-year treasury bond, and those yields right now are abysmal. We think that will propel stocks to newer record highs.”

All of those factors, he said, create a “positive combined effect” on the economy.

Colbert added while global economic factors — such as tariffs, trade wars and economic crises faced by other countries — may affect the U.S. economy, the effect is not significant.

“We are buffeted by those foreign economies, but we are not being grossly pushed around,” he said. “It’s like a choppy sea, but we can still make our own forward progress.”

And while Colbert said he’s generally bullish overall on the direction of the U.S. economy, he said U.S. employers probably need several million immigrants to fill many jobs that are currently difficult to fill.

As for the accuracy of his economic forecasts, Colbert said although he is confident, his predictions could eventually prove wrong “sooner or later, no doubt about that,” But, if anything, he thinks his prediction of continued growth might be too conservative.

“If I had to put odds on it, we might go six or seven years” he said.

jwolz@semissourian.com

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