Current indications are that the U.S. economy will remain strong, William Strauss, senior economist with the Federal Reserve Bank of Chicago, told a 2019 Fastener Tech conference.

Since World War II, economic expansions have average five years. The current expansion is nine years.

“Tariffs will ultimately hurt the U.S. economy” by raising prices to consumers and hurting productivity, Strauss said.

He cited the example of Ford importing wire harnesses from Mexico. When tariffs drive up the cost of wire harnesses, it increases the ultimate cost of Ford vehicles. 

“It winds up making us less efficient,” Strauss pointed out.

Market “nervousness today probably is over trade stuff,” Strauss suggested.

Though the probability of a recession forecast two quarters out “moved up a bit,” but it is not a “skyrocketing” trend, Strauss said.

Factors such as number of new orders “tends to fall ahead of a recession,” he pointed out.

The employment sector is “hot,” with employers finding it difficult to hire qualified workers. In the past 12 months there were 2.6 million new jobs – one of the best records dating back to a 3.6% increase in 1969.

Strauss said indicators are a 2% growth in the first half of 2019.

The stock market remains strong, indicating investor confidence in future returns.

“We will most likely avoid the “R” word,” Strauss said of a potential “recession.”

• “I am optimistic wages are going higher,” Strauss declared. “People are due increases.” Ultimately, worker real wages result from productivity.

“If workers produce 1% more, a pay increase of 1% doesn’t cost you,” Strauss noted.

During the last recession starting in 2007, 8.7 million people lost jobs.

•  Low energy prices are helping the economy, with oil once at $75 a barrel and now about $50.

• The housing market is still “not back to normal.”

•  U.S. manufacturing “had a super year” in 2018. Strauss questioned if manufacturing “was maybe stronger than it should be?”

• Though U.S. vehicle sales have edged down 1.7% this year, they are “still solid.” Cars may be down, but light truck sales are up, he pointed out.

Alternative powered vehicles are still less than 5% of sales, he noted.

Upcoming are UAW labor contract talks, which may involve guarantees on plant closings, Strauss suggested.

 •  A problem could be a recent downturn in the German economy, which could lead to a European recession.

The Federal Reserve Board is prepared to respond with monetary policy if there is an economic downturn, Strauss commented.

He said rate increases are “unlikely this year.” Web: ChicagoFed.org