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Mild Recession Could Hit in 2019, Economist Says

Mild recession could hit in 2019, economist says


By Katie Thisdell

Thursday, November 19, 2015


Growth will continue in the United States for the next four years before a mild recession hits in 2019, a renowned economist told a crowd of San Diego's commercial real estate professionals this week.


"The 2019 recession will be a moderate, middle-of-the-road recession, led by the consumer," Alan Beaulieu said. "You're going to feel it, but in San Diego, you're not going to feel it intensely. It really becomes a cash issue. As long as you have enough cash and haven't done crazy things in 2017-18, you're going to find it's a buying opportunity at the end of 2019 more than anything else."


But in 15 years, the country could experience a decade-long great recession that will especially disrupt and devastate Gen Xers and millennials, said Beaulieu, emphasizing that the immediate future is bright and the slight sluggishness currently is normal.


Beaulieu, principal of ITR Economics, is considered one of the country's most informed economists. He presented an outlook for 2016 and beyond during what was the last formal event of the year for San Diego's chapter of NAIOP, the commercial real estate development association.


Despite falling for three months, one of ITR's leading indicators of U.S. industrial production should bounce back around March or April next year, Beaulieu said, and the last three quarters of 2016 will feature an accelerated U.S. economy.


"Any industrial free market economy, that's the nature of the beast. Left to our own devices, we'll continue to see the U.S. grow and grow and grow. We're not an old and dying nation," Beaulieu said. "This is still a young, vibrant nation. We still have good potential for the next 15 years, before it all derails."


Every 10 years or so, the country experiences a recession to some degree. The last was 2008-09, so it makes sense the next will be in 2019. But how steep will it be?


Many people today are in what Beaulieu dubbed recession hangover, and worry that the next will be as bad as the last one.


"It's an entirely different world now," Beaulieu said. "The financial conditions of the United States, the financial condition of consumers, the way we look at the world -- it's all different. That changed us."


The next recession will be mild, Beaulieu forecasted. GDP will be negative, industrial production will drop about 3.4 percent, and the recession will likely be consumer-led, which is an easier one to fix, he said. GDP is growing at record high levels, Beaulieu said, and is not in recovery. Employment, retail sales, manufacturing, and GDP are at record highs, though tourism is slightly down.


"We will continue to prosper as we go forward," said Beaulieu, noting that California's economy would be considered the sixth largest in the world if it were a country.


China tops the list of Beaulieu's concerns, particularly the country's demographics stemmed from the one-child policy, the recently devalued currency, along with its internal debt.


"State-owned banks lend to state-owned enterprises that aren't paying back the state," Beaulieu said. "That's a system that's doomed to failure. ... The government of Beijing cannot slow down the lending because they cannot afford the social disruption of state-owned enterprises failing."


That shouldn't be a surprise, but China's economic state is something that few like to talk about: If China goes down the tubes, it brings the world with it, the economist said.


Beaulieu also said aging populations worldwide -- particularly in China -- will present troubles in the future. Already in the U.S., healthcare spending is rising because of costs to care for older adults.


Beaulieu hopes to see the U.S. dollar weaken slightly to improve export activity and jobs.


Entitlement spending continues to drive up the U.S. debt, and by 2035, debt service will consume 25 percent of the federal budget, Beaulieu said.


"Our borrowing days are numbered," he said.


But, he said there are lots of good signs: Consumers are in great shape. The world is relatively calm. Employment is rising. Banks are lending. Retail sales are rising. Non-residential construction is improving. Banks have the money, and want to lend, he said.


The next 15 years is the best time to borrow money, Beaulieu said.


Just don't carry debt into the next Great Depression. (Subscription required)

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