Major Drivers and Challenges for 2020 U.S. Economic Growth

The major drivers for the U.S. economic growth in 2020 include:

• The non-manufacturing sector, including consumer and service, may continue to grow robustly.
• In January 2020, the PMI index and some industries have rebounded, and 8 out of the 18 industries included in the index saw growth.
• International trade conditions between the U.S. and China, Mexico, and Canada have improved. Notably, the Phase I trade deal between the U.S. and China and the reduction of tariffs will raise imports and exports and reinstall some confidence in U.S. manufacturers.
• Domestic financial conditions may remain relatively sound, with borrowing costs remaining unusually low and the credits for businesses and households could remain supportive of spending and economic activity.
• Monetary policy will be still accommodative and the Federal Reserve will continuously provide liquidity support and may cut the rate again if necessary. The Fed indicated that it would leave its benchmark interest rate unchanged for the rest of 2020 unless there is a change in data suggesting otherwise. However, based on the interest rate futures market, it is clear that many investors expect the Fed to cut the rate by 25 bps at least once in 2020.
• The composite leading indicator for the OECD countries rose in December after having increased for the first time since the end of 2017 in November. The rest of the world generally showed positive results. The most recent indicator does not incorporate the effects of the coronavirus outbreak, meaning they may be overly optimistic. However, the global slowdown in manufacturing and trade appears to be nearing an end, and consumer spending and services activity around the world continue to hold up. Recent indicators provide tentative signs of stabilization. Therefore, global economic and trade growth could accelerate moderately from 2019. 

Meanwhile, the major challenges include:

• By 2019, the effect of tax cut enacted in 2017 had abated. As the labor market tightened, job growth decelerated as well. In the meantime, household debt has been growing. All of these mean that consumer spending could slow down accordingly. 
• Corporate earnings and profits growth will remain sluggish, which will constrain business investment recovery. 
• Manufacturing output is unlikely to improve noticeably, especially as the halt in the production of Boeing's 737 will reduce production and export growth. 
• The emergence of the COVID virus. The effects have presented a new risk to the outlook. The Fed and some economists have started to mark down their Q1 U.S. growth. It may make it more difficult for China to meet the import targets set by the U.S.-China trade deal. Global supply chains have already been significantly disrupted and now face new disruption from the coronavirus. However, for now the impact of the coronavirus outbreak on the U.S. economy appear to be uncertain. 
• The U.S. appears to be embarking on a trade war with the EU. Thus, uncertainty remains, and may influence the U.S. export growth. 
• The labor force participation will remain lower than most other advanced economies and the history, and the productivity gains will remain subpar, which will still be a drag for economic growth. 

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