Part 1 of a 2-part economic outlook from guest blogger Dr. Chris Kuehl. (Read part 2.)

Just in case you hadn’t noticed, 2020 is an election year. Traditionally, the state of the economy plays a significant role in the electoral outcome; hence the phrase “It’s the economy, stupid.” In 2020 the phrase may alter a bit to “It’s the stupid economy.” There is a great deal of uncertainty about what 2020 will bring as the unusual forces and actions are already at work, and they will play an even bigger role next year — especially for manufacturers.   

There are four critical areas to keep an eye on. The first and perhaps the most important is the potential for a real recession. The second is the impact of global trade wars and what that is doing to the global economy. The third issue is the attitude of the consumer as this has been the factor that has thus far sustained growth in the U.S. Finally, there is the long-term issue of labor shortage — perhaps the most difficult challenge manufacturers are going to face for the coming year and decade.  

Recession is not likely in 2020 — let’s get that out of the way immediately. The ingredients are just not there. There has been no inflationary pressure causing the Fed to raise interest rates to control it. There has been solid employment growth and confidence in the consumer sector as well as among investors. What is likely is a slowdown to growth of between 1.7% and 2.1%.   

The real issue as far as a recession is concerned is rooted in the sheer size of the U.S. economy. This is a $20 trillion system, the largest in the world. That means that at any given moment a part of the country is enjoying growth and another part is likely mired in decline. These variations affect the manufacturer.   

As 2020 dawns the automotive sector is stable despite persistent assertions that the consumer is less motivated to buy a new vehicle. The energy sector had been roaring along, but there has been a reduction in demand for oil globally and prices have fallen. That has slowed development of the overall energy sector. Agriculture has been in a pronounced slump, and that has negatively affected the manufacturers of farm equipment. Aerospace has been stalled by the issues that continue to plague Boeing.  

On the plus side, health care manufacturing is having stunning growth, and commercial construction is booming compared to a couple of years ago. The level of capacity utilization has been hovering in the high 70s, which still suggests there is considerable slack in capacity — a situation that mitigates adding new machines. On the other hand, the acute labor shortage has pushed more and more companies to adopt robotics and technology.  

The U.S.-China trade war has been vexing and confusing as it seems there is no strategy behind the starts and stops. The real issue concerning this trade war is that it is only one of the trade confrontations taking place, and all of them have combined to take the export sector to record lows. In addition to the confrontation between the U.S. and China, there is Brexit and its impact on the U.K. and Europe; a trade war between Japan and South Korea; one between China and India; another between Brazil and Argentina; and a whole host of economic sanctions that have affected Russia, Iran, Venezuela, and others. All of this has distorted trade and created a global slowdown to less than 3.5% growth.