2020 US Outlook: Extending a long expansion

2020 Growth Expectations

  • Growth has slowed to potential but we expect a modest acceleration starting in H2 2020 as uncertainty wanes.
  • Core inflation should pick up as the impact from transitory factors continues to wane and labor markets remain tight.
  • After cutting rates three times in 2019, we expect the Fed to remain on hold over the forecast horizon.

The US economic expansion is in its eleventh year. We expect growth to continue, but at a slower pace. The fiscal stimulus that boosted growth in 2018 is waning. Growth in US trading partners has slowed. Uncertainty surrounding economic policy and the business environment generally has increased and is depressing investment. Activity in the industrial side of the economy remains particularly weak.

With the US-China economic relationship in flux, the Trump administration still pursuing its broader, disruptive, trade policy, and a national election on the horizon, we think heightened uncertainty will persist in 2020. This is one key to our outlook. We think businesses will remain cautious next year, and that will depress investment and overall growth. The current circumstances are highly unusual. It is possible that businesses will pull back more than we have assumed in our forecast. This basic analytic uncertainty is one of the biggest downside risks to our outlook.

Breakdown of real GDP growth and Nomura's forecasts

However, we also see factors that will support growth next year. Consumer fundamentals remain strong. Inflation risk seems modest, and that has allowed the Fed to support the expansion with 75bp of easing over the past six months. Recent increases in corporate borrowing pose a risk in the next downturn, but we do not think corporate credit will be the trigger for the next recession. We see little likelihood that inflation will pick up to a degree that the Fed would find unwelcome. Following the unusual underperformance of inflation late in the cycle, and associated declines in inflation expectations, we think the Fed will want to foster a period of “reflation.” This benign outlook for inflation, and the Fed’s response to it, is likely to keep interest rates, both short- and long-term, near current levels for some time.

Core PC inflation outlook


  • Lewis Alexander

    Chief US Economist

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