Penn State Economist Discusses Outlook for 2020


It’s hard to make predictions, especially when it comes to the economy. However, by examining statistics and trends, economists can get a better idea of the economic outlook for the region and the country. Here, Ken Louie, Ph.D., director of the Economic Research Institute of Erie (ERIE) and associate professor of economics at the Black School of Business at Penn State Erie, The Behrend College, shares some insights ahead of his Economic Forecast IMPACT Luncheon presentation on December 12 at the MBA Conference Center in Erie.

Some economists are saying that we should expect slower economic growth, possibly even a recession, for the U.S. economy and global economy in 2020. What does your research show?

By some measures, U.S. macro- economic performance is still strong. For example, in September, the unemployment rate fell to 3.5 percent, the lowest level in half a century. Inflation has also remained low, with the Consumer Price Index increasing by a modest 1.7 percent in September compared to a year ago. The fact that the economy has been operating at “full employment” without generating higher inflation is a positive sign, indicating that further economic growth is possible in 2020.

At the same time, however, there are some signs that economic growth may be slowing. Recent statistics from the Federal Reserve indicate that U.S. industrial production was 0.1-percent lower in September compared to a year ago. Industrial capacity utilization also decreased 0.4 percentage point in September to 77.5 percent, which is 2.3 percentage points below its long- run (1972–2018) average. Growth in U.S. real GDP has already slowed to 2 percent in the second quarter, down from 3.1 percent in the first quarter. The Fed’s most recent projections indicate that U.S. growth will remain at 2 percent in 2020, but fall to 1.9 percent in 2021 and to 1.8 percent in 2022. In this context, the Fed pushed interest rates lower for the second time this year in September.

There are also signs of potential weakness in the global economy. The International Monetary Fund (IMF) recently lowered its forecasts for global growth in 2019 to 3 percent, the lowest rate since the 2008-2009 financial crisis. While the IMF expects global growth to rebound to 3.4 percent in 2020, this represents a 0.2 percentage point downward revision compared with earlier forecasts made in April.

It’s too early to tell if these are all signals of an impending recession. Whether the U.S. economy and the global economy will enter into recession will depend on many factors that are yet to be played out fully, including the likelihood of renewed trade tensions between the United States and China, the repercussions emanating from a final Brexit agreement, changing consumer and business sentiment both in the United States and abroad, and government policies around the world. Even the “inverted yield curve,” which has been a reliable predictor of U.S. recessions in the post WWII period, has been giving mixed signals. After inverting earlier in the year, the yield curve has reverted back to “normal” in October.

What about regional economic outlook? How does it compare with the state and nation?

Unfortunately, the Erie regional economy experienced a reduction in real (inflation-adjusted) output by 0.8 percent between 2016 and 2017, the most recent year for which data are available. During the same period, real output grew by 1.7 percent in Pennsylvania and by 2.2 percent in the nation as a whole.

The good news is that, on a seasonally-adjusted basis, nonfarm employment in Erie has increased over the past year, albeit at a very modest pace of 0.5 percent (700 jobs). During the same period, nonfarm employment grew by 0.6 percent in Pennsylvania and by 1.4 percent in the United States as a whole.

Which sectors are showing the most growth heading into 2020 and why? The Erie sectors showing the most employment growth over the past year include Education and Health Services, Leisure and Hospitality, Local and Federal Government, Transportation and Utilities, and Wholesale Trade. The growth in these sectors reflects Erie’s continuing evolution towards being more of a service-providing economy.

You are marking the ninth anniversary of the ERIE Leading Index this year. Are there any surprises that we should note from your most recent findings?

Unfortunately, the Erie Leading Index (ELI) has registered another slight decline, reflecting decreases in Erie manufacturing employment as well as PA Average Weekly Hours in Manufacturing. A decrease in U.S. Building Permits also contributed to the decline in ELI. The silver lining is that employment is slowly expanding in other parts of the local economy.

What key areas/current issues should we be keeping our eyes on when it comes to the economic forecast for 2020?

Locally, key areas to keep our eyes on include the job situation at Wabtec. In addition, the acquisition of LORD Corporation by Parker Hannifin Corporation may have some local economic effects. Also worthy of attention are the new investment projects in the region, including the recently announced plans to expand the Magee-Womens Research Institute (MWRI) to Erie and create a new biomedical research lab at Penn State Behrend’s Knowledge Park. These are among the notable events that will affect the structure of the local economy, as well as the level of employment. Of course, it will also be important to keep track of national and global events such as shifts in economic policy and possibly intensified trade conflicts.

To learn more about the 2020 Economic Outlook, register for the MBA’s upcoming IMPACT Luncheon on December 12 in Erie at