The Federal Reserve cut interest rates on lending by a quarter percentage point on Wednesday. Many analysts predicted another rate cut to spur business growth and head off a potential recession. But a national economist told hundreds of people in Milwaukee Tuesday that consumer spending should be able to keep the U.S. economy going anyway.
As the Texas-based president of Prestige Economics, Jason Schenker studies a lot of indicators. Schenker says surveys of purchasing managers who work for U.S. manufacturers show a slight reduction in buying. He also says that manufacturing in many other parts of the world is having a tough time.
"I know folks are really worried about recession — and yes, there is a recession in the eurozone, and yes, there's recession in Chinese manufacturing, and yes, business investment is contracting. But last year, we had the tailwinds of a once in a generation corporate tax cuts and a big boost in business investment. Naturally, there's sometimes a pullback. That's what we're kind of seeing right now," Schenker said during the Milwaukee Jewish Federation Economic Forum.
Schenker also says business investment is only 15% of the monetary value of all finished goods and services — otherwise known as the gross domestic product (GDP).
"Consumption is 70% of GDP. That's people buying stuff. Right now, people have jobs, wages are up. That's 70% of the economy. So clearly, we can weather the storm," Schenker predicted.
He says consumers are also in relatively good condition because the stock market is up this year and the interest rate on savings in the U.S. is still positive. It's negative in parts of Europe. Mortgage debt is in better shape than a decade ago, but car loan debt is up.
Tuesday’s forum also featured a panel of business and government leaders. State Department of Administration Secretary Joel Brennan says even with a pretty good economic forecast, Wisconsin employers have not forgotten the pain of the Great Recession.
"There's a whole bunch of caution. Yes, things may still be going OK. But we remember how bad things were 10 years ago. So, I think that conditions the reaction from a lot of employers around the state," Brennan said.
But Brennan says he also continues to hear from many businesses that one key to boosting economic growth in Wisconsin is to ease a worker shortage in some industries. So, he says he supports efforts to get more people into the workforce, including more of those coming out of incarceration.
Support for Innovation reporting is provided by Dr. Lawrence and Mrs. Hannah Goodman.
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