Are you worried the economy will tank in 2019? David Barnes has a message for you: Relax.
Barnes, professor of economics at Illinois Valley Community College, said despite the recent stock market volatility and radically-shifting interest rates, the economy still is in terrific shape.
“There is no recession coming,” Barnes said emphatically.
To hear local stockbrokers tell it, most local investors seem to think so, too. While major stock indices nosedived last week — the Dow Jones Industrial Average fell 25,900 to 24,300 in a whirlwind three days — Barnes and other market watchers say the economy is too fundamentally strong to believe doomsayers who think a slowdown is looming.
“They’ve predicted 10 of the past five recessions,” Barnes quipped, adding seriously, “There are so many employers looking for workers, the economy is humming and the fundamentals are so strong. There is no chance there will be a downturn in the next year or two.”
Businesses who’ve scouted the Illinois Valley don’t seem to think so, either. Bob Vickrey, Peru’s director of economic development, stays in contact with large corporations with in-house economists, and he hasn’t heard a whisper from any about a looming slowdown.
“Consumer confidence is up, gas prices are down and unemployment is at a 50-year low,” said Bob Vickrey. “I’m very confident that there are downstream economic development announcements — and announcements in the offing for 2019.”
Local investors also don’t seem worried. David Claggett, branch manager and senior vice president of investments at Benjamin F. Edwards & Co. in Peru, said his clients haven’t shown much anxiety about recent market performance.
“Most people remain relatively sanguine because the economy continues to seem strong and be growing,” Claggett said. “Any real concern is how much short-term volatility may be out there.
“I don’t think anyone is terribly rattled yet.”
None of which is to say the Chinese trade dispute is affecting Wall Street alone. Jerry Phlippeau, president and CEO of the Flipo Group Ltd. in La Salle, said the trade war has adversely affected 15 percent to 20 percent of his Chinese-made inventory. He’s hoping for a quick and peaceful resolution to the trade flap.
But Phlippeau was quick to point out that manufactured goods as a whole are being less affected than commodities such as soybeans. And he lent his voice to Barnes’ view when asked if he believed we’re headed for a recession.
“I don’t think we are, but I sure hope not,” he said.
The R-word was thrown about last week amid an ongoing trade dispute with China and after economists spotted what’s called an “inverted yield curve” or when the gap between long-term and short-term interest rates closes. Economists were quoted last week saying the inverted yield curve has, in the past, proved to be an indicator of a coming recession.
Barnes said he doesn’t share that view. He said the short-term rate — that is, what banks charge other banks to borrow overnight —abruptly zoomed to 2½ percent after hovering around zero for the past eight years. That created plenty of short-term volatility but does not, he argued, call into question the overall strength of the economy.
Steve Witek, certified financial planner with LPL Financial in La Salle, agreed the inverted yield curve does not, in his view, portend any slowdown.
“I think the economy still is on very solid very footing,” Witek said, “and while maybe we won’t continue at 3 percent GDP growth, I’m still confident we’ll continue to grow at 2 percent GDP or better.”
Witek explained that a recession is, by definition, two consecutive quarters of negative GDP growth and he simply doesn’t envision that happening in the foreseeable future.
None of which is to say investors aren’t getting a touch of the jitters, however. Witek said the recent market performance remains watching, not least because the fourth quarter is drawing to a close and his “statement-minded” might not like the quarterly statements coming in January.
Here again, though, Barnes isn’t worried with the recent market performance. Barnes said it’s simply a reflection of the fact investors are selling off some of their yearly gains — the Dow reached a record 26,800 on Oct. 3 — before New Year’s Eve.