Economist Sean Snaith Says Recession Possible If Consumer Confidence And Job Market Wanes

By  //  June 7, 2016

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HOUSING MARKET could STill show improvement

The U.S. Labor Department reported Friday that job growth in May had its worst performance in more than five years

The U.S. Labor Department reported Friday that job growth in May had its worst performance in more than five years

ORLANDO, FLORIDA — With the latest jobs report signaling a weakening job market, UCF economist Sean Snaith says we could be headed for another recession if consumer confidence wanes and policy uncertainty continues.

The U.S. Labor Department reported Friday that job growth in May had its worst performance in more than five years.

“We are still stuck in the ‘gravy boat recovery’ with little to no indication that we will ever get to the meaty portion of the recovery any time soon,” said the director for the Institute for Economic Competitiveness at the UCF College of Business, who in 2009 predicted the shape of the recovery would be like the serving dish with its elongated spout.

Sean Snaith

Sean Snaith

In his second quarterly national economic forecast of 2016, Snaith notes that real Gross Domestic Product growth has averaged just 2.1 percent, due in large part to the Dodd-Frank Wall Street Reform and Consumer Protection Act, Affordable Care Act and other rules and regulations.

Seven years after the end of the recession, the average level of policy uncertainty is nearly as high as it was during the recession itself,” Snaith said. Higher levels of policy uncertainty lead to lower levels of investment and employment.

U.S. consumers continue to play the largest role in supporting the recovery and are the primary source of GDP growth in the forecast. Consumer growth has weakened the past two quarters. Growth in real consumer spending from 2016 through 2019 is expected to average just 2.6 percent, according to the forecast.

If consumer confidence erodes and consumers begin to pull back, Snaith says the United States could slip into a recession.

The forecast projects that real GDP growth will slow to 1.6 percent in 2016, hit 2.7 percent in 2017 and 2018, and then slow to 2.3 percent in 2019 as the Federal Reserve gradually tightens interest rates.

The Federal Reserve will likely raise interest rates twice this year and gradually thereafter providing it does not reverse course and lower interest rates in an attempt to counter the next recession.

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Average monthly payroll employment growth is off to an even weaker start than last year due in part to uncertainty and regulatory burden. Unemployment rates are expected to steady at about 4.9 percent through 2018; however, underemployment will continue to be a problem.

On the bright side, the forecast shows the housing market should slowly improve through 2018 before rising interest rates force it to level off. Housing starts are expected to rise from about 1.2 million in 2016 to 1.54 million in 2019.

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ABOUT THE AUTHOR

Sean Snaith is a national expert in economics, forecasting, market sizing and economic analysis who authors quarterly reports about the state of the economy. Bloomberg News has named Snaith as one of the country’s most accurate forecasters for his predictions about the Federal Reserve’s benchmark interest rate, the Federal Funds rate.

Snaith also is a member of multiple national forecasting panels, including The Wall Street Journal Economic Forecasting Survey, CNNMoney.com’s survey of leading economists, the Associated Press Economy Survey, the National Association of Business Economics Quarterly Outlook Survey Panel, the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, the Livingston Survey, Bloomberg U.S. Economic Indicator Survey, Reuters U.S. Economy Survey, and USA Today Economic Survey Panel. 

The Institute for Economic Competitiveness strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses. Through these analyses, the institute provides valuable resources to the public and private sectors for informed decision-making.


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