What Will Be the State of U.S. Economy at the End of This Year, 2020?
A distinctive feature of the American economy is its focus on scientific progress and advanced technology. The USA is a leader in implementing the results of scientific and technical progress in the production of export licenses for their discoveries, inventions and latest developments. This often leads to dependence of other countries from the United States in science and technology and determines foreign policy of the state.
The current decline in capital spending results from uncertainty related to international trade negotiations. Business supply chains are far more complex than most politicians understand, and monkeying around with trade rules throws significant uncertainty into sourcing products, leading many executives to wait and see what is going to happen. And this wait-and-see attitude dampens spending.International trade volumes will be low, which is a global trend, with more reduction in imports to the U.S. than exports. Worldwide trade is flat despite continued economic growth. Part of this is services growing more than merchandise sales. The other part is that during times of uncertainty about international trade rules, companies source more inputs in their home countries rather than from foreign suppliers. In addition, the dollar is ten percent higher on foreign exchange markets than it was a year ago, making our exports more expensive to overseas buyers. Our imports, of course, are cheaper in terms of greenbacks. The dollar is unlikely to reverse course unless other major economies show more economic strength, or the Fed eases significantly more. Neither of these possibilities seems very likely.
In the baseline forecast, we expect overall demand to remain low, both because of the pandemic and because so many people are out of work. That will likely result in some significant discounting over the next year. The battle between supply and demand will likely continue through the forecast horizon. In a world of high unemployment, businesses will have little pricing power but will face higher costs. Given these offsetting factors, the baseline forecast calls for inflation to continue at about 2.0% over the forecast horizon.