ALBANY — Hugh Johnson on Thursday predicted another year of growth for the U.S. economy and stock markets, but not huge growth.
And not without numerous caveats to his own predictions.
Multiple indicators point to a slowdown after the longest economic expansion and longest bull market in U.S. history, the noted economist and investment strategist said, but he expects these to be outweighed by the positive signs, and by the strength of the U.S. economy.
It was the 31st edition of the year-ahead forecast sponsored by the Capital Region Chamber. In his scorecard of the 30th, the chairman and chief investment officer of Albany-based Hugh Johnson Advisors noted he’d missed the mark last year with some of his predictions for this year: The gross domestic product grew less in 2019 than he predicted, more jobs were created, inflation was much higher and the stock market climbed more than he predicted.
The reason: The 2019 economy was stronger than he expected.
With misgivings, he’s predicting more growth.
“Will 2020 bring us a hard landing, which is a bear market which is accompanied by a recession? Or will the economy continue to recover and the stock market continue move a little higher?” he asked.
“I have an answer which is a positive answer, but never before in my 31 years of talking to you have I had such an enormous amount of reservations, of concerns, of worries.”
Chief among those worries is the record length of the current economic recovery and bull market, 125 and 128 months, respectively.
Among the other causes for his concern:
- The U.S. Treasury yield curve inverted this year, though it subsequently uninverted; seven of the eight previous inversions have been followed by a recession.
- The index of leading economic indicators was down three consecutive months, a trend that more often than not is followed by a recession.
- Growth in U.S. worker productivity has slowed.
- The current economic recovery, while the longest on record, has also been among the most anemic; it is constrained by the fact that U.S. population growth has slowed and the percentage of the adult population working or seeking work has decreased.
- The federal budget deficit is reaching untenable levels; tax increases and/or spending cuts made to address it would hasten the start of a recession if one was brewing at the time and make a recession already underway worse.
Among the positive signs countering those negatives:
- A record amount of cash is held in reserve by financial institutions.
- Purchasing manager indexes worldwide are mostly higher, indicating greater industrial activity.
- Investors have migrated this year to riskier sectors of the stock market, which they wouldn’t do if they thought a recession or market adjustment was impending.
- Getting re-elected is a bigger priority for President Trump than looking tough on China, so he will reach a settlement in his trade war before it can cause too much more damage to the economy.
So what’s an investor to do?
Paraphrasing the great investor Warren Buffett, Johnson said: “It wasn’t raining when Noah built the ark.”
In other words, prepare now for what you expect to happen.
The art or the science of investing is accurately predicting what will happen, of course. Johnson predicted low unemployment and low inflation Thursday, as well as limited job growth and limited increase in consumer spending, but he was hesitant to connect the various economic indicators into a single confident prediction for the overall economy.
“On balance I would argue — and it’s a really close call — the message to investors is the current economic recovery will continue through the end of 2020.”