2020 Economic Outlook: Adapting to a New Normal

2019 was a year of living anxiously. Trade uncertainties, the inverted yield curve and slowing industrial activity all fueled ongoing fears of a recession. Despite all of that, investors appeared unfazed as the equity market climbed to new heights—reaching unprecedented levels relative to the size of the economy. This begs the question: Are the issues that dominate headlines really the main story?

The reality is that the economy isn’t operating under the same playbook of decades past—and the way we think about and measure growth is outdated. There’s a new normal for today’s economy, and it’s largely driven by three factors.

First: Demographics are reshaping the labor market as the growth of the US workforce is one-third what it used to be. That’s because more people are retiring from the workforce, making it hard for businesses to fill open roles and pushing the unemployment rate down to historic lows. As the natural growth of the working-age population slows, the economy should slow as well.

Second: Tech innovation is creating challenges for workers but it’s also improving productivity and lifting profit shares. This shift has been happening over the past few decades, and the tech advances we see today have caused a structural change in the economy that may have a longer-lasting effect than investors once assumed.

And third: Globalization is expanding the field of economic opportunity, as living standards are rising in countries around the world and creating new consumer markets for US goods and services. With 85 percent of the world’s population living in developing economies, global expansion will continue to create opportunities for businesses.

What does all this mean for the economy this year? We seem to be entering the arena of steady-state growth, so, it shouldn’t come as a surprise if the economy transitions to a slower pace. The recovery from the last recession is over, but that doesn’t necessarily mean a new recession is imminent.