12-3-19 Jay Bryson addresses Greater Reading Chamber Alliance on US economy - graphic.jpg

WYOMISSING, Pa. - Based on available information and a few assumptions about the future, it looks as if the United States will not be going into a recession any time soon. That was the message Jay Bryson, a global economist at Wells Fargo Securities LLC, shared with members of the Greater Reading Chamber Alliance at its 2019 economic forecast breakfast in Wyomissing on Tuesday.

Bryson said, as of July, the U.S. economy was in its longest economic expansion on record, however, the real gross domestic product (GDP) growth has slowed over the past few quarters. He said he expects the economic expansion to continue at a growth rate of about 2%, but cautioned business owners to "stress-test" their businesses to make sure that if something bad were to happen, they would be prepared for it.

Bryson then shared some "underlying fundamentals of the economy" that help determine the future of the U.S. economy.

The current state of some of those fundamentals includes a solid rate of personal consumption expenditures, a strong but slowing labor market, a household debt that is back to levels before the housing bubble, a 40-year low on the country's household financial obligation ratio (how much people owe), and a higher household savings rate. He gave the U.S. household sector a solid B grade.

He gave the business sector, however, a B-minus.

"B-minus – not awful, not great either," he said. "This is something that we're watching closely, and it's not like this is going to cause a recession anytime soon."

He said all business debt is at 75% of the GDP, which is the highest it's been since the end of World War II.

"Businesses have levered up," Bryson said.

And operating profits of the S&P companies are flat.

Bryson also said that the interest coverage ratio – the amount of cash flow that businesses have to cover their interest expense – is not bad in a historic context, however, it has come down the last five years, and that ratio would be even lower if the interest rates were to go higher.

"This is something we're keeping an eye on," Bryson said. "It is not as strong as we would like to see it. It's not awful. It's a B-minus."

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Bryson spoke in detail about the effects of the U.S. trade policy on the country's economy. He said he does not believe that an all-encompassing trade agreement with China is likely, but even an all-out "fist-fight with China" would probably not send our country into a recession.

"Last year, we exported about $120 billion to China," Bryson said. "I understand that's a very, very large number, but I can give you an order of magnitude even larger. I can give you $21 trillion as the size of the U.S. economy."

That means the $120 billion makes up only .6% of the GDP, which, "in and of itself," is not enough to put the U.S. into a recession, but he cautioned about potential collateral damage.

"If we get into an all-out pushing match with China," Bryson said, "which way do you think business fixed investment is going to go? It's not going to strengthen."

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What could change the current economic growth are uncertainties, with the biggest being next year's U.S. election. Other things that could upset the country's economic balance are Brexit, the debt crisis in China, Hong Kong's unrest, and geopolitical shocks.

"There's always uncertainty in any sort of economic view, but right now, I think it's more cloudy than normal," Bryson said. "That's not a call to go batten down your hatches. We believe the expansion will continue, but I think that you want to stress-test your businesses. Make sure that if something bad were to happen, you're prepared for it. There's no reason to expect this expansion will come to an end [soon], but it's getting longer and longer, and sooner or later, there will be an economic downturn."