Jared Polis will face several challenges as governor of Colorado, but one of the biggest could be an economic downturn in the second half of the year, if a forecast from economist Alan Beaulieu finally proves out.
Beaulieu is president of ITR Economics and a specialist in predicting economic cycles. This year, as he has done for much of the decade, Beaulieu made his first public forecast of the year in front of the Denver Chapter of the Association for Corporate Growth.
“The U.S. economy and your economy in Colorado will slow down in 2019,” he told the more than 275 people attending a lunch Tuesday at the Embassy Suites in downtown Denver.
The downturn will hit industrial firms, exporters and commodity producers harder than it will consumers and the businesses that supply them. And it won’t be particularly severe, but it will sting after a long stretch of growth.
“Expect a slow down, but don’t expect a break down,” he said.
Given what some of the economic numbers are starting to show and the stock market’s brutal slide in the fourth quarter, that may not seem like a particularly daring call. But Beaulieu has consistently predicted this slow down in his Denver visits since 2014 and even earlier.
Last year, he thought the slow down would manifest in the first half of 2019, but this year he pushed it back two quarters, because of the stimulus from the tax cuts in late 2017. But he said it is coming.
A host of economic indicators are now pointing to slower growth, and the realization finally hit stock investors, jolting a market running on a sugar high, he said. Higher tariffs and trade disputes have brought pain to China, which is contributing to a larger global slow down that will weigh on the U.S. economy. And as the U.S. economy slows, Colorado will slow with it.
Still, many economists don’t see a recession in the cards given the strong hiring still taking place. Economist Elliott Eisenburg, also a frequent visitor to Denver, points to the 312,000 net new jobs employers added in November, the biggest increase since February of last year.
Wages are growing at a 3.2-percent clip, the best showing in a decade. More workers are coming back into the labor force.
“With data like this, household consumption will remain strong and there will be no recession,” Eisenberg predicts.
Beaulieu offers a different set of numbers. Exports are slowing, housing is slowing, business confidence is falling and in an ominous development, retail spending is starting to rise at a slower rate. He predicts the economy will peak in the second quarter before sliding lower in a downturn that lasts about a year.
But he isn’t calling for a severe downturn. Business-to-business providers will feel it more than consumers. Capital investment will drop, and raw material prices will weaken. Home price gains will moderate, with activity in nonresidential real estate turning down about a year after the larger economy.
The downturn will usher in what Beaulieu describes as the roaring ’20s, an extended stretch of strong economic growth interrupted by a few moderate downturns. A shortage of workers will drive up wages, and immigration will be an important issue to watch.
Wage hikes will push inflation to levels not seen since the 1970s and early 80s with moderate gains in the fist half followed much steeper price increases in the second half.
It will be a period of great cultural change as millennials assert their economic and political power. The next decade will be a period of increased prosperity and strong stock gains, but it will not end well, he said.
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An aging population, rising health care costs, growing government entitlements, higher inflation, and unsustainable borrowing will all combine to crash the U.S. economy and usher in another Great Depression, Beaulieu said.
The 2030s will be a lost and painful decade for those who haven’t prepared, he warns.
Perhaps a Cassandra — a maker of dire predictions — but if Beaulieu is right in his call for a 2019 recession, it might be worth taking heed.
