In the wake of the ever-changing coronavirus outbreak, the national economy will see small, if any growth in the second quarter, followed by a gradual improvement over the third and fourth quarters.
That’s according to a local economic expert who shared details of his economic forecast for the Lehigh Valley Business Real Estate & Development Symposium on Thursday at DeSales University.
The discussion mainly focused on how the rapidly spreading virus could affect the sectors of the economy in the weeks and months to come.
The Federal Reserve could cut interest rates on March 18 and it’s possible the economy could see a slowdown in the first quarter, showing about 1.8% growth, said Keith Aleardi, executive vice president and chief investment officer for Fulton Financial Advisors in Lancaster.
“We will likely have very little growth in the second quarter of 2020,” Aleardi said. He estimated it would be about 0 percent.
However, in the third quarter, economic growth could rise 1.5% and rise to 2.5% in the fourth quarter.
Aleardi described that trajectory as solid, reasonable growth.
“The good news on the supply side is we are starting to see China come back online,” Aleardi said, referring to some sense of some normalcy coming back into the business operations of the country.
On the fiscal side of the economy, a poor policy decision or mistake on the part of the federal government could cause a recession. And if lawmakers make a poor decision in the next six months, that could lead the nation into a stronger recession, he said.
On the plus side, job growth remains strong, which also supports the economy by translating into consumer spending.
“We have more jobs available than people willing to work,” Aleardi said. “When people are feeling positive about the economy, they are willing to spend.”
He said he does not see that changing much. The nation’s low interest rate and low inflation rate environment helps support the real estate industry, he added.
“Construction optimism has been very strong, I think in part because we still have a housing deficit,” Aleardi said. “There still remains about a one million housing deficit across the country but housing supply remains tight.”
Home affordability continues to be very strong, Aleardi added.
The labor shortage, business sentiment and easy monetary policy provides a floor for economic growth, he said.
With labor growth of .2 percent for the next 10 years, unemployment is unlikely to rise, according to Aleardi. Therefore, consumer confidence is likely to remain solid, and therefore a recession is unlikely. In addition, the negative effects of the trade war should abate this year.
The local economy looks pretty good as well, he said, noting that the Lehigh Valley is still in expansion mode. Much of that is predicated on the housing market.
“Provided the virus is short-lived, we do have this floor in the economy,” Aleardi said. “The biggest issue around here is capacity.”
Businesses have trouble finding the skilled workers they need.
“In the next couple of years, we are still going to struggle with this labor force issue,” Aleardi said.
The upcoming election will also affect the economy and with a competitive election, policy decisions create the biggest risk, he said.
With an unknown outcome, the election is a factor that creates uncertainty in the economy.
“As elections draw near, that tends to take a little off GDP [gross domestic product]. Businesses are unwilling to make long-term decisions if they don’t know what the playbook is. If we get past the virus and past the election, we’ll get a better idea of what the playbook is.”
The national economy needs growth and businesses are the ones who will drive that demand, he added.