So when’s this party finally going to end?
It’s a question that economists seem to be asking more frequently as they gather around the punch bowl and gab about the unusual length of this 10-year recovery. You don’t need a PhD to know nothing this good lasts forever.
A panel of Massachusetts economists Monday released notes from their last quarterly meeting under a downbeat title: “Caution is the watchword.” Then the Federal Reserve Bank of Boston chief Eric Rosengren on Tuesday tinged an otherwise rosy outlook by warning of elevated “downside risks” to the economy.
Sure, economists tend to be cautious by nature. Ten percent chance of rain? Most would recommend packing an umbrella.
But there’s an undercurrent among the latest commentaries, one that implies the sugar high from the year-ago tax cuts in Washington is starting wear off. While a recession probably won’t start tomorrow, plenty of experts warn of the possibilities for 2020.
For the most part, Rosengren remained upbeat in his speech to the National Association of Corporate Directors’ local chapter in Boston. The most likely outcome: US economic growth that’s “somewhat above” 2 percent for 2019, hewing closely to the Fed’s 2 percent target. But Rosengren rattled off unresolved issues that could slow things down further: sluggishness in China and Europe, tariffs and other trade constraints, Brexit-related uncertainty, problems at European banks.
The MassBenchmarks editorial board cited similar issues, based on a summary released Monday of its quarterly meeting in February. Weakening economic conditions, it said, are contributing to more concerns about the potential for a national recession. Robert Nakosteen, the journal’s executive editor and a professor at UMass Amherst, says there isn’t one single threat. Instead, it’s a slow accretion of problems, those proverbial downside risks. Drip, drip, drip.
Massachusetts’ success, the economists say, could be part of the quandary. This economic boom makes it that much harder for companies to find the workers they need here to grow. The good times drive up housing costs, and pose more stresses to already-strained transit and road networks. And the Trump administration’s efforts to restrict the flow of immigration, the economists say, are already causing labor shortages in major sectors here: tourism, agriculture, and seafood processing.
Michael Goodman, a MassBenchmarks co-editor and a UMass Dartmouth prof, says the labor issues place real constraints on future economic growth. The fact that the spoils have largely been concentrated in one area, Greater Boston, hasn’t helped.
Businesses are starting to notice. The Associated Industries of Massachusetts’ employer confidence index still skews in a positive direction. But the index weakened in the second half of 2018, falling in January to its lowest point since 2016. (It improved in February, slightly, but still remained lower than at any other point in the last two years.)
Consumers in Massachusetts remain upbeat. But their optimism could be slipping. Mass Insight’s February reading of consumer confidence fell significantly from October levels, although it’s too early to know if a trend is emerging.
The consequences could be significant for the state budget. Tax collections are trailing the state’s benchmarks through the first eight months of the fiscal year by 1.6 percent. Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, says she’s not worried about this year. But the slowdown in growth could make it harder to budget for the fiscal period that begins July 1.
In many ways, McAnneny says, we’re living on borrowed time with this decadelong recovery. Good thing the state has $2 billion in its rainy day fund, thanks in part to a capital gains-related windfall last year.
Those rainy days will arrive, sooner or later. As one wise man once said, parties weren’t meant to last.