Economist: Risks exist, but economy still strong

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Editor's Note: This story originally appeared in the Feb. 18 issue of GSA Business Report.

Economic expansion from the Great Recession is nearly 10 years old, leading some businesses and consumers to wonder when another recession might hit. But Matt Martin, regional executive at the Federal Reserve Bank of Richmond, said expansions don’t die of old age.

Martin, speaking recently at Greenville Technical College’s Center for Manufacturing Innovation, said 2018 was a “very good year. There was some fiscal stimulus that helped juice the economy.” But over the last several months Martin has been getting questions from business leaders about the possibility of another recession in 2019 or 2020.

“There is the idea that if this expansion lasts to this summer there will ultimately be a recession. That’s not how it works,” Martin said. “It takes a shock of some sort to throw off an economy. The U.S. economy is a pretty big machine with a lot of inertia.”

Martin identified some risks that have the potential to affect the economy if they come to fruition. This year’s economy may not experience the growth seen in 2018 because of a fading fiscal stimulus, but expansions don’t die simply because they’re old, he said.

More realistic risks to the economy include concern over China.

“It’s clear China’s economy has slowed down significantly,” Martin said. “And Germany might actually be in a recession right now.”

He said Germany is an export-oriented country and exports from Germany to China have “slowed down a lot.”

Whenever there is uncertainty or an increase in uncertainty, businesses and consumers tend to pull back a little bit and wait until more information is available to them, Martin said. And in addition to global uncertainty, business is worried about policy uncertainty, including threats of a government shutdown and trade wars.

“That’s a risk that’s particularly relevant to this region more so than other parts of the country with the region’s manufacturing base,” Martin said of trade wars.

Martin said people in business are telling him they simply want those matters resolved so that everyone knows what the rules are.

“That’s generally the perspective,” he said. “We’re in an environment where there are risks we’d like to see play out.”

The regional economy does not operate outside the national economy, so understanding where we’re going more broadly is important, according to Martin, who said his role with the nation’s central bank puts him “sort of out on Main Street” to get a real-time view of the economic picture.

“The national data comes in with a lag and so you’re looking behind you when you’re looking at the data,” he said. “It doesn’t tell you why businesses or consumers took the actions they did, so we try to get that richness through a lot of different touch points.”