Ag Summit Review

Long Recovery Brightens U.S. Economy

Nariman Behravesh, Image by Jim Patrico

The United States is in the middle of what is now 104 months of economic recovery, much longer than the average length of 60 months. And, without an obvious shock to the system, the U.S. economy could remain in growth mode for the next couple of years.

That’s the consensus of Nariman Behravesh, chief economist for IHS Markit, an information and analytics firm that examines global economic trends. While the U.S. agricultural economy is showing slow recovery, he points out the U.S. is in the midst of the third-longest economic recovery since the 1850s. The global economy also now is seeing its strongest economic growth since 2011--driven not by emerging markets but more by the U.S., Europe and Japan.

Behravesh’s presentation was the first of the Marcia Zarley Taylor Memorial Lecture Series, honoring Taylor, former executive editor at DTN/The Progressive Farmer who passed away last February. The Ag Summit was Taylor’s brainchild and passion while at DTN.

While the Trump administration wants sustained growth of 3% annually, Behravesh points out mature economies don’t generally sustain such growth targets. “We’re in very solid ground as far as the U.S. is concerned. I don’t think even with a tax cut we can sustain 3% growth. That’s very, very unlikely.”

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Still, consumer confidence is at 17-year highs as income growth is good, jobs growth is good and household net worth has improved through higher stock value and home values. “So, there are a lot of fundamentals for the consumer that are improving,” he says.

Capital spending by businesses had been lackluster until recently. However, businesses also feel the Trump administration is more business-friendly than the Obama administration, mainly with cuts in regulations and the push for lower taxes.

“Businesses feel this,” he explains. “They feel they have got a friend in Washington … So they are beginning to spend on capital of all kinds, and this has become a bit of engine growth.”

Long-term trend growth in the U.S. generally averages between 2 and 2.25%, he adds. “We can’t go above that for too long without triggering inflation, which would mean higher interest rates, etcetera, etcetera.” However, he credits better monetary policies as being “very growth-supporting” and explains the Fed (Federal Reserve) will not get in the way of current economic growth.

Looking at the tax legislation recently passed by Congress, Behravesh says the long-term concern is it will raise the federal budget deficit by as much as $1.5 trillion over the next decade. Ignoring the budget deficits could become inflationary. That would trigger a much sharper reaction by the Federal Reserve to raise interest rates down the line.

“So, I’m glad they are lowering corporate tax rates. We need those cuts, but the way they are doing it raises my concern levels substantially,” he warns.

Going back to the length of the U.S. economic cycle, Behravesh says, “Recoveries in the U.S. do not die of old age, they get killed off.”

An asset bubble hit the economy in 2008. There are debates among economists about possible current market bubbles, but Behravesh doesn’t see any obvious signs in the market right now.

What keeps him up at night are the potential policy mistakes, such as a government shutdown or failure to raise the debt ceiling. Another risk is a trade war. He acknowledges President Trump has a blustery style of negotiation that comes on strong then seeks to reach a deal. Still, a lot of posturing in trade talks is going to rattle the markets, he says.

There are significant risks if the U.S. walked away from the North American Free Trade Agreement or got into a trade war with China, Behravesh says. “I don’t know why this administration doesn’t grasp the severity of this problem.”

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