U.S. economy maintains moderate growth

12.17.19

The U.S. economy slowed in 2019 to an estimated 2.3%, down from 2.9% in 2018. Interest rate hikes and a shrinking balance sheet from the U.S. Federal Reserve (Fed) coupled with the diminished fiscal benefits from the 2017 tax cuts would have been enough to slow the expansion. However, President Donald Trump’s escalation of the trade war with China and tariff threats toward other major trading partners — including the European Union (EU), Canada, Mexico and Japan — further pressured the economy. Our view for some time has been that trade poses the biggest threat to both U.S. and global growth. We anticipate Trump wants to claim victory on trade to strengthen his 2020 re-election bid. The phased agreement announced in December may give him that opportunity. The deal, which still needs to go through the legal process, appears to include some tariff relief and commitments from China to purchase agricultural products.

Global GDP growth sees lift in 2020
Chart Showing Global GDP growth sees lift in 2020

Source: Ivy Investments. Chart shows 2019, 2020 forecasts of annual gross domestic product (GDP) growth, all based on purchasing power parity. Past performance is not a guarantee of future results. The GDP growth forecasts are current through December 2019, and are subject change at any time based on market and other conditions. No forecasts can be guaranteed.

We forecast U.S. GDP growth will be unchanged in 2020 and average 2.3%. However, this masks the underlying trend in the economy. Economic growth weakened throughout 2019 because of trade uncertainty, which further hampered business confidence and caused companies to pull back on capital expenditures. The CEO Economic Outlook Index, a composite of CEO expectations for capital spending, hiring and sales over the next six months, showed declines in all three measures through fourth-quarter 2019. It marked the seventh straight quarter in which the chief executives of the nation’s biggest companies downgraded their view of the U.S. economy.

The view from Main Street businesses is somewhat more upbeat. The Small Business Optimism Index rose in November, marking its biggest month-to-month gain since May 2018, according to the National Federation of Independent Business. Seven of the index’s 10 components improved and small business owners said they added jobs at the highest level since the spring.

In addition, consumer spending — the key driver of the U.S. economy — continued to grow at a reasonable pace throughout 2019 and housing activity ticked up in the latter part of the year. We expect the cadence of growth to improve through much of 2020 on better business investment and housing activity and believe growth in consumer spending will continue at a solid pace.


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Past performance is not a guarantee of future results. Risk factors: Investment return and principal value will fluctuate, and it is possible to lose money by investing. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed income securities are subject to interest rate risk and, as such, the net asset value of a fixed income security may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds.

The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.

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