Economist: Recession is Coming in 2019

SAN DIEGO—A mild macroeconomic recession will hit the US in less than three years, and we're still on track for the Great Depression of 2030, but the overall US economic outlook is rosy, ITR Economics' economist Dr. Alan Beaulieu told attendees at yesterday's NAIOP event, “2016 Economic Outlook Breakfast: The New World Order and its Impact on the US Economy.” Beaulieu, a return speaker to the series, covered a broad swath of economic topics that gave on the whole a sunny picture of the US and San Diego economies for the foreseeable future.

Despite a predicted 1.9% decline in industrial production in 2019, the US is the world's largest economy by far—65% larger than China, regardless of other reports, said Beaulieu. He said there will be good economic activity before the Great Depression hits, and San Diego is well positioned to feel any economic downturn less than many other US cities.

“The US GDP is slowing down, but it will go up soon,” he added, with manufacturing going up and energy prices rising next year. He said 2017 will be a recovery year, but some softness will begin to hit by mid-2018. “The economy is in growth, not recovery. The recession ended a long time ago,” but we need to internalize the positive things going on in the US. “We don't need to be afraid for a long time.”

Tourism, a major part of San Diego economies, is looking strong, and the trade of non-durable goods is going up, but there is a decline in software production.

Oil and gas are largely affected by global politics including Saudi Arabia going after Iran, said Beaulieu. “Russia is becoming less relevant every day” and will be “starved for cash.” He said oil prices will rise in 2017 and will end that year at $55 per barrel. “The glut is going away; consumption is up in the US and China, and we're beginning to see sustained economic movement. There will be a slow march-up of oil prices over the next 12 months.”

Renewable energy consumption is also up, but this is an expensive proposition, so we will never be fully dependent on green resources for fuel, Beaulieu explained. “Fossil fuel is integral to our well-being. We are an energy-dependent nation, but we produce 90% of what we consume, which gives us economic power. Europe needs Russia; we need no one.” He added that China is beginning to engineer some economic activity and doesn't care what the world thinks.

Stimulus spending, which has proven effective in some countries, actually has a negative effect on our economy, said Beaulieu. “The US is not good at stimulus spending.” He said the US Navy is extremely important to the world economy and commerce.

Meanwhile, Brexit, a subject of some concern in recent months, is inconsequential to our and Europe's economy, Beaulieu said. “Europe will not be hurt; Brussels will negotiate an amicable divorce. Don't worry about Brexit.”

Brazil, the “poster child for what went wrong,” will also sort out its problems and “be fine” in the years to come, he predicted.

Here in the US, exports have been a drag on our economic activity. Beaulieu said corporate profits have to go up for 2017 to be a better year—it's necessary for the economy to create and move forward. Business-to-business activity is still negative but expected to rise in 2017.

Healthcare is another drag—something we “can't afford” due to the surge in aging Baby Boomers. “It's an unsustainable economic system; there's not enough technology for it,” said Beaulieu. Another negative is our country's public debt, which is only second to Japan's and is approaching Greece's level, he added.

Still, there are good days ahead, Beaulieu pointed out. “The banks are lending, and interest rates will go up—they need to in order to incentivize people to borrow before they go up.” Employment and manufacturing are also up domestically.

“The US is the most competitive nation in the world in manufacturing; manufacturing is the fourth-largest employer in the US,” Beaulieu said. And California is one of the highest manufacturing states in the country, despite its reputation among other states. Defense spending, which is cyclical and independent from politics, is also up.

Looking at San Diego in particular, 17% of the workforce is in professional business services. While retail, healthcare and leisure/hospitality are flat here, office employment is up 2.7%, the 13^th highest rate in the nation, said Beaulieu. Construction is down due to lack of labor, but wages have hit a record high; the only median wage to go down is that of CPAs, and this is because older CPAs are retiring and younger CPAs don't earn as much. “San Diego, like most of California, is in good shape.”

While California residential construction is slightly below the national level, this lull will not last long, said Beaulieu. “We won't see the 2006/2007 type of situation; more like 2014, leveling off.”

Beaulieu spoke fondly of Millennials, calling them “good for the country” and predicting that they would get us through the Great Depression.

SAN DIEGO—A mild macroeconomic recession will hit the US in less than three years, and we're still on track for the Great Depression of 2030, but the overall US economic outlook is rosy, ITR Economics' economist Dr. Alan Beaulieu told attendees at yesterday's NAIOP event, “2016 Economic Outlook Breakfast: The New World Order and its Impact on the US Economy.” Beaulieu, a return speaker to the series, covered a broad swath of economic topics that gave on the whole a sunny picture of the US and San Diego economies for the foreseeable future.

Despite a predicted 1.9% decline in industrial production in 2019, the US is the world's largest economy by far—65% larger than China, regardless of other reports, said Beaulieu. He said there will be good economic activity before the Great Depression hits, and San Diego is well positioned to feel any economic downturn less than many other US cities.

“The US GDP is slowing down, but it will go up soon,” he added, with manufacturing going up and energy prices rising next year. He said 2017 will be a recovery year, but some softness will begin to hit by mid-2018. “The economy is in growth, not recovery. The recession ended a long time ago,” but we need to internalize the positive things going on in the US. “We don't need to be afraid for a long time.”

Tourism, a major part of San Diego economies, is looking strong, and the trade of non-durable goods is going up, but there is a decline in software production.

Oil and gas are largely affected by global politics including Saudi Arabia going after Iran, said Beaulieu. “Russia is becoming less relevant every day” and will be “starved for cash.” He said oil prices will rise in 2017 and will end that year at $55 per barrel. “The glut is going away; consumption is up in the US and China, and we're beginning to see sustained economic movement. There will be a slow march-up of oil prices over the next 12 months.”

Renewable energy consumption is also up, but this is an expensive proposition, so we will never be fully dependent on green resources for fuel, Beaulieu explained. “Fossil fuel is integral to our well-being. We are an energy-dependent nation, but we produce 90% of what we consume, which gives us economic power. Europe needs Russia; we need no one.” He added that China is beginning to engineer some economic activity and doesn't care what the world thinks.

Stimulus spending, which has proven effective in some countries, actually has a negative effect on our economy, said Beaulieu. “The US is not good at stimulus spending.” He said the US Navy is extremely important to the world economy and commerce.

Meanwhile, Brexit, a subject of some concern in recent months, is inconsequential to our and Europe's economy, Beaulieu said. “Europe will not be hurt; Brussels will negotiate an amicable divorce. Don't worry about Brexit.”

Brazil, the “poster child for what went wrong,” will also sort out its problems and “be fine” in the years to come, he predicted.

Here in the US, exports have been a drag on our economic activity. Beaulieu said corporate profits have to go up for 2017 to be a better year—it's necessary for the economy to create and move forward. Business-to-business activity is still negative but expected to rise in 2017.

Healthcare is another drag—something we “can't afford” due to the surge in aging Baby Boomers. “It's an unsustainable economic system; there's not enough technology for it,” said Beaulieu. Another negative is our country's public debt, which is only second to Japan's and is approaching Greece's level, he added.

Still, there are good days ahead, Beaulieu pointed out. “The banks are lending, and interest rates will go up—they need to in order to incentivize people to borrow before they go up.” Employment and manufacturing are also up domestically.

“The US is the most competitive nation in the world in manufacturing; manufacturing is the fourth-largest employer in the US,” Beaulieu said. And California is one of the highest manufacturing states in the country, despite its reputation among other states. Defense spending, which is cyclical and independent from politics, is also up.

Looking at San Diego in particular, 17% of the workforce is in professional business services. While retail, healthcare and leisure/hospitality are flat here, office employment is up 2.7%, the 13^th highest rate in the nation, said Beaulieu. Construction is down due to lack of labor, but wages have hit a record high; the only median wage to go down is that of CPAs, and this is because older CPAs are retiring and younger CPAs don't earn as much. “San Diego, like most of California, is in good shape.”

While California residential construction is slightly below the national level, this lull will not last long, said Beaulieu. “We won't see the 2006/2007 type of situation; more like 2014, leveling off.”

Beaulieu spoke fondly of Millennials, calling them “good for the country” and predicting that they would get us through the Great Depression.