If you were to bet that the U.S. economy would dip into a recession within the next couple of years, your odds might be better than winning the Mega Millions jackpot — but you’d still likely lose that bet. 

David Berson, senior vice president and chief economist for Nationwide, laid out both favorable and unfavorable trends he sees in the coming year as the guest speaker for the Bankers Trust Economic Forecast Luncheon held Wednesday at the Hilton Des Moines Downtown. Prior to Nationwide, Berson held chief economist posts with the PMI Group, Fannie Mae and Wharton Econometrics. 

Berson said the best indicator of the next recession — an inverted yield curve in which long-term rates dip below short-term rates — does not appear likely to materialize anytime soon. Once it does, there’s typically a one- to two-year lag before a recession would begin. If the current expansion continues through next June to reach the 10-year mark, it will become the single longest period of economic growth in U.S. history, he said. 

Among the good indicators: By next year, we could easily see U.S. unemployment rates in the low to mid-3 percent range, which would be the lowest seen since the 1960s. At the same time, productivity growth is much slower than it was in the 1990s, which indicates there’s probably a little more slack in the labor market for wage growth. 


Now growing at about 3 percent, gross domestic product will likely slow to between 2.5 and 3 percent in 2019 due to rising interest rates and trade dislocation from tariffs, Berson predicts. 

At the same time, small business optimism as measured by the National Federation of Independent Business is “extremely high,” as is the Institute of Supply Management’s assessment of large companies’ prospects. Corporate profits are also achieving double-digit percentage gains. 

“Certainly this has been helped by tax cuts, but also helped by stronger economic growth,” he said. “Consumer confidence has soared.” 

Regarding labor supply, “we’ve never had businesses tell us they have so few qualified candidates,” he said. “It’s hard to expand faster if you don’t have qualified workers. In fact, the No. 1 small business problem is now that companies aren’t able to find good workers to hire.” 

As the economy expands, Berson anticipates knowledge workers will fare relatively better in rising wages, less so people working with their hands, he said. However, “there is a significant shortage of workers in the skilled trades, and part of that I think is a failure of the school systems to teach those.” 

Looking at the real estate market, housing sales have fallen off a cliff, and the supply of existing homes on the market is unbelievably low, he said. “We really don’t know why people aren’t selling their homes,” Berson said. “But it’s resulting in lower supply and increasing home prices.” 

After his presentation, we asked whether he thought federal and state tax cuts will benefit Iowans. 

“When you cut taxes, there are demand-side impacts and supply-side impacts,” he said. “The demand-side impacts are what people call Keynesian impacts. People have more money, and they typically spend it. And they have. Part of the reason we think we’re going to get the strongest growth since 2005 this year are those Keynesian impacts from the tax cut. 

“Personal consumption expenditures have gone up a lot this year,” he added. “And while business investment hasn’t picked up like we hoped, it’s not terribly weak this year. Longer-term on the supply side, they’re much less certain because they happen over time.”  

Berson said that most of the tax cuts, at least at the federal level, were on the business side and directed to be supply-side cuts. 

“Most of them were sorely needed — corporate tax rates were simply too high, and we were being hurt by that,” he said. “The real question is will you get more than just a short-term Keynesian demand stimulus from that — will you get a long-term increase in business investment that increases productivity growth? That’s still uncertain. I hope the answer will be yes.”