Next US Recession 'is Lurking Out There' Even As Economy Grows Loading... MLive You are signed in as Loading... Edit Public Profile Sign Out The Ann Arbor News The Bay City Times The Flint Journal The Grand Rapids Press Jackson Citizen Patriot Kalamazoo Gazette Muskegon Chronicle The Saginaw News Michigan Change Region >Next US recession 'is lurking out there' even as economy grows Updated December 7, 2017 at 8:12 AM; Posted December 7, 2017 at 7:30 AM Crews board of vacant homes as apart of a new program announced by Detroit Mayor Mike Duggan to board up 11,000 abandoned houses not slated for demolition in the next two years, Aug. 10, 2017. The program will hire 40 workers and up to 20 returning citizens. (Tanya Moutzalias | MLive.com)(Jake May | MLive.com) By Paula Gardner PaulaGardner@mlive.com The U.S. can expect more economic growth in the coming years, but it's not going to last forever, according to economists watching new data and historical trends. Robert Dye, chief economist for Comerica Bank, delivered the forecast on Wednesday, December 6, during an annual event for investors in Ann Arbor. Dye's presentation stressed that he expects positive economic activity to continue for the next two years, barring a catastrophe. However, the duration of the growth phase is raising questions about how long it can continue. "We're in a funny position," Dye said. "I know there's another recession out there someplace." "On one hand, a lot of good things are happening," he said. "On the other hand, we know it's a late cycle." Rising wages, for example, are starting to take place - but they lead to lower corporate profits. That, he said, will lead to what he called "the inevitable" restructuring. It takes three things to push the economy into a recession, or period of economic decline. While those three still would need definition for the U.S. to see a recession, Dye offered some possible examples. They included a stock market correction from this year's record highs; an Asian stock melt-down; or an automaker like Fiat Chrysler taking an unanticipated hit as vehicle sales fall. 1.We're about 18 months from setting a new expansion record. The last record of unstopped economic growth is 120 months, set in the 1990s, Dye said. We're now at about 102 months, he said. "If we want to break the record, we have to keep this going well into 2019," he said. That is do-able, he said, but not certain. Expansion cycles have been getting longer, Dye said, as part of what is called The Great Moderation since World War II. The average since 1854 is 38.7 months. 2. There's a very strong employment market. The unemployment rate across the U.S. is just over 4 percent, while 261,000 payroll jobs were added in October. He expects that to fall to 3.7 percent or so by the end of the expansion, while Michigan's came in at 4.5 percent in October - after falling to 3.8 percent over the summer. "Nobody (who wants to work) is standing on the sidelines, unemployed," Dye said. "... If you want to hire a good, quality worker, you've got to go raid the guy or gal across the street and ... offer more money." As a result, he said, "wages are starting to come up a little bit,' Dye said. That is good for the worker, but also a sign that the economic cycle is heading toward its end, he said. Corporate profits are contracting because of it. 3. Expect interest rate hikes. We're still in a low interest rate environment, but Dye expects a third 2017 rate hike on December 13 when the U.S. Federal Reserve holds its last meeting of the year. "That's all but certain," he said. He expects two more in 2018 and then again in 2019. That will come despite low inflation. Some sectors may feel it over the next few years, he added. One is housing, as young adults consider home buying while grappling with student debt. Millennials looking at mortgages going from 4 percent to an eventual 4.5 or 5 percent may not seem like a big deal to a Baby Boomer, but "down the road that could be enough to push some of these struggling millennials and first-time entrants to the housing market back," Dye said. 4. Tax reform will have some benefits, but also may signal a priority change. "It does look like tax reform is adding a nice lift to the stock market," Dye said. And it looks like that can continue, he added. The impact on the consumer side looks fairly small, Dye said. The biggest impact, about 2/3 is on the corproate side. "But I think we'll get a little disappointed on the infrastructure spending," he said. The reason: Entitlement reform seems to be the next priority, pushing infrastructure behind it. That, Dye said, seems to convey "some scrambling for dollars." However, the tax cuts need to involve offsets - so that the deficit doesn't increase, Dye said. There is a 3-percent budget gap, which is sustainable. However, if it gets up to 5 percent, that's not sustainable. Dye predicts a number of "sunset" clauses in the final plan. 5. Michigan's auto growth has peaked. There's a good argument, Dye said, that spending on autos will continue. That's due in part to the buyers who bought with a good deal in 2011-2012 will be looking for a new vehicle. But the job growth in Michigan will be slowing, Dye said, to about 1 to 1.5 percent through 2019 - and below the U.S. average. The push from the auto sector revamping is over, Dye said. More growth will come from the service sector, he said. That's visible in metro-area numbers, where job growth in places like Lansing are outpacing Metro Detroit. "Things are pretty good right now," Dye said. And he added: "It's not a bad place to be." One key indicator that economists will watch in coming years: The 2020 census. With negative net migration and more residents leaving the state from 2000 to 2010, Michigan "simply runs out of bodies" for job creation, Dye said. "...In the long-term, it's simply a labor-market constraint."