On Feb. 28, the Department of Commerce released a much-anticipated estimate for 2018’s fourth-quarter economic growth. Delayed because of the government shutdown, the 2.6 percent in GDP growth was above the 2.3 percent consensus expected by prognosticators. While still well below the third quarter’s 3.4 percent, and even further below the second quarter’s roaring 4.2 percent, the higher-than-expected growth rate was welcome news.
Keep in mind that 2018’s fourth quarter was not exactly an economic romper room experience. The three-month period contained bad news on the trade war, a sharp Fed increase in interest rates followed by a heavy Wall Street sell-off, and the beginning of a 35-day government shutdown that ended on Jan. 25 and curtailed government services while putting 800,000 federal workers off payroll.
In December, while the government shutdown was just getting underway, White House economists indicated that GDP growth would be reduced by 0.13 percentage points for every week the shutdown lasted. They also stated that most of this loss would be added back subsequently when federal payrolls were adjusted for lost back-pay. This means December’s loss of one week and a fraction reduced GDP growth by about 0.16 percentage points, at least temporarily.
In other words, the fourth-quarter economy would have grown by a healthier 2.76 percent had it not been for the shutdown. Looking ahead, it also implies that the 2019 economy should grow at better than 2.0 percent and that the economic engine is not likely to be troubled by recessionary forces any time soon.
There are two other significant pieces of economic evidence that strongly support a “no 2019 recession” forecast. The first is a monthly indicator maintained by the Federal Reserve Bank of Chicago. Their National Activity Index is based on 85 economic variables and has a better than 90 percent record in predicting negative turning points for the economy. Happily, the most recent Chicago estimate shows a slowing economy, but no movement that would imply a pending recessionary downturn.
The second piece of evidence comes from the Federal Reserve Bank of Kansas City, which maintains a Labor Market Conditions Index for the national economy. This index also sheds light on the possibilities of recession, and again, the Kansas City data show no weakness that would predict that to be the case in 2019. To make things a bit better, even if the Kansas City index were to signal a pending recession, it would not occur until about 12 to 18 months from this point. This sounds like another all-clear signal for 2019.
The latest economic growth number along with two Federal Reserve Bank indicators offer balm for troubled souls who are worried about a 2019 recession. But before putting away the worry beads completely, let’s remember that this is the Ides of March when bad things have been known to happen. Yes, things look better than just OK — provided the events of the last few months were a temporary derailment and not the opening volley of a new series of economic disruptions.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business and Behavioral Science.
