20 Reasons There Won't Be a Recession in 2020

After a decade of economic strength and large gains for the stock market, there are plenty of nervous investors who think that 2020 could bring a sharp reversal of fortune for the U.S. economy. Yet in response to those naysayers, here are some of the many reasons why a recession isn't likely to come in 2020.

Unemployment in the U.S. has been at historically low levels around 3.5%. That means that relatively few people who want work are having trouble getting it, and it makes workers looking to switch jobs feel more confident in their prospects. That's a positive for the overall economy.

Most popular stock market benchmarks are at or near all-time record highs. That points to the confidence that investors have in some of the largest companies in the world, and it also bodes well for those who rely on their investment portfolios in order to finance their lifestyles.

Trade tensions between the U.S. and China have continued for a long time, but recent progress suggested that an end might be in sight. After the damage that tariffs have done to some parts of the economy, any relief could spell new growth for those businesses hardest hit by trade disputes.

After considerable partisan wrangling, it now appears that a new North American trade agreement will move forward. Given that Mexico and Canada are two of the most important trade partners for the U.S., a trade pact could spell greater prosperity for millions of residents of the three countries.

Tax cuts that took effect in 2018 will continue throughout 2020, reducing the amount of tax that individuals and corporations pay. The impact of lower tax rates might not be as obvious as it was when the cuts were new, but they'll still add a lot to profits for companies and let investors keep more of their hard-earned cash.

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2019 featured an abrupt about-face from the Federal Reserve on interest rates, as the central bank reversed its previous rate hikes by cutting short-term rates three times. That was intended to keep the economy growing, and a more favorable rate environment has contributed to growth throughout the year and should continue to do so.

Economic growth in gross domestic product came to 3.1% in the first quarter of 2019, 2% in the second quarter, and 2.1% in the third quarter. These are solid readings, but they don't indicate excessive froth in the economy. Sometimes, faster growth can precede recessions, but this rate of growth isn't so fast as to warrant concern.

Prices at the pump have a big impact on discretionary spending, but gasoline has stayed in check in 2019. A rise early in the year gave way to a steady decline in the second half of the year, and that's giving consumers more power in their wallets to spend on other things.

Inflation remains in check, as the Consumer Price Index has risen just 2.1% over the past 12 months. That's very close to the Fed's 2% target, and it indicates that economic growth has been in a sweet spot that hasn't led to higher prices. That's a good place for the economy to be going into 2020.

Consumer confidence figures have been strong all year, with one popular measure remaining above 90 for all but one month in 2019. Consumers play a key role in the U.S. economy, so their strength bodes well for the economy as a whole.

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Median prices for existing homes are up more than 5% from year-ago levels, with strength in regions across the nation. That's good news for homeowners, although low inventories are making it harder for those who want to purchase homes to find properties they want. After the housing crisis in the mid-2000s, home prices have been on a long upward trend, helping to boost the wealth of average Americans.

Despite attempts to rein in their budgets, consumers aren't pulling back on their spending, as data from the Bureau of Economic Analysis shows monthly gains in the 0.2% to 0.5% range during the second half of 2019. That doesn't seem to indicate a recession, and healthy initial readings on holiday spending support a more optimistic view as well.

Some economists look at leading indicators like building permits, manufacturing orders, and expectations of future business conditions for guidance on what's coming for the U.S. economy. After a couple months of declines, the Conference Board's Leading Economic Indicators index was flat in November, signaling modest but solid economic growth for 2020.

Wage growth has been strong in the U.S. in 2019, typically coming in between 4% and 6% year over year on a monthly basis. That's consistent with low unemployment, but it's also not such a large increase that it means inflation will inevitably accelerate.

The U.S. economy produced 266,000 new jobs in November, which was higher than expected. Yet throughout 2019, job creation has come at a measured pace, keeping unemployment low but avoiding a real crunch in filling new positions. That balancing act is paying off for the U.S. economy, and policymakers will try to keep it intact in 2020 and beyond.

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The U.S. economy gets support from businesses spending money in order to expand and create new opportunities. Tax cuts and other measures haven't achieved all of their goals of boosting investment, as many companies have instead increased dividends or stock buybacks. Nevertheless, some industries have spent more to create jobs or boost production, and that's likely to keep having a positive impact on the economy in 2020.

Europe has had a tougher time than the U.S. in trying to keep its economy moving upward. Yet even though many have criticized negative interest rates in Germany and other large European economies, they've managed to keep the situation on the continent from becoming worse -- and that bodes well for U.S. multinationals that rely on Europe.

The threat of a disruption when the U.K. voted to leave the European Union roiled stock markets worldwide, but it now appears that an orderly Brexit is more likely to happen. Recent elections have confirmed many people's ideas about Brexit, and if the U.K. government can move forward expeditiously, it could be a big relief to nervous investors.

When stock markets go up, it often causes people to feel richer, and that makes them more likely to spend on high-ticket items. That in turn can give the overall economy a boost, as this wealth effect drives greater activity. As long as markets keep climbing, the wealth effect should help support economic growth.

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One big problem in the 2008 and 2009 financial crisis was that businesses and consumers alike suddenly couldn't get access to capital. That's not a problem today, as low interest rates have made it easier for lending institutions to offer money to customers. Moreover, hunger from investors for IPOs signals that the stock market is still popular. That bodes well for the economy.

It's natural to worry after such a long period of prosperity. But there are many reasons to expect that the U.S. economy will avoid a worst-case scenario and instead could keep picking up speed in 2020. Keep your eyes on these metrics and see if they live up to your expectations.

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