Cautious Optimism with a Touch of Volatility Likely for the Second Half of 2020
By Jason Schenker
The economic and financial outlook for 2020 has consistently been one of volatility. And so far, we have not been disappointed. Geopolitical surprises, domestic political antagonisms, trade dynamics, oil price volatility, and other financial market surprises have already been pushing and pulling on markets—and economic expectations. Plus, the Democratic primary season has presented its share of surprises. And more pre-election surprises, as well as accompanying financial market volatility, lie ahead in coming months.
Weakness and strengths
Weakness in U.S. business investment and U.S. manufacturing played out in 2019, with recessions in both. And 2020 data for these more sensitive and dynamic elements of the economy have often been choppy at times. On the upside, the economic outlook for the second half of the year looks stronger for investment and manufacturing. And 2020 appears likely to be the year when the U.S. and global manufacturing recessions end.
Even if the prospects for 2020 U.S.economic growth only remain modestly positive, we could see some wild swings in financial markets—especially as the election nears.
One of the biggest factors supporting this is the job market, which is the most fundamental cornerstone of the U.S. economy. After all, U.S. consumption is 70% of GDP, while U.S. business investment is a much smaller part of the economy, at only 15 to 20% of GDP. In recent months, people have been experiencing a strong job market and a noteworthy rise in wages. This has translated into increased purchasing power—and it is supportive of growth. But financial markets are at risk.
Luckily, financial markets are not the economy. Regardless of the GDP impact of business investment and financial markets, the consumer is critical for the economy. This means that even if the prospects for 2020 U.S. economic growth only remain modestly positive, we could see some wild swings in financial markets—especially as the election nears.