More and more economists are jumping on the recession bandwagon of late, predicting the U.S. is headed toward a significant economic slowdown by the end of 2019 or sometime in 2020. The reasons are varied — political instability in the U.S. and abroad, a slowing Chinese economy, etc. — but JPMorgan Chase & Co. says there is a 40 percent chance for a recession over the next year, while S&P Global Ratings puts it at a 14 percent to 20 percent chance, according to the Wall Street Journal.
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More and more economists are jumping on the recession bandwagon of late, predicting the U.S. is headed toward a significant economic slowdown by the end of 2019 or sometime in 2020.
The reasons are varied — political instability in the U.S. and abroad, a slowing Chinese economy, etc. — but JPMorgan Chase & Co. says there is a 40 percent chance for a recession over the next year, while S&P Global Ratings puts it at a 14 percent to 20 percent chance, according to the Wall Street Journal.
More locally, economist Fred McKinney, a business professor at Quinnipiac University, says signs also point to a recession and that businesses should start to prepare now.
I'm not an economist so I won't venture to make my own prediction, but if you follow economic cycles in recent history the U.S. is overdue for a recession.
It's significant for many reasons but particularly for state lawmakers and Gov. Ned Lamont, who is currently putting together his first two-year budget that will need to balance a multibillion-dollar deficit.
The state budget is put together in part based on economic projections, which means budget-setters must predict growth rates over the next few years in order to determine expected revenues from key sources like income and sales taxes.
If they predict too rosy an outlook, which the Malloy administration did on several occasions, budgets quickly go out of balance.
More importantly, a U.S. recession will likely lead to job losses, less consumer spending and an overall contraction of the Connecticut economy, which means state policymakers will need to ensure they have strong reserves to tap when tax revenues slow.
That's why it's crucial that the state not use its rainy day fund to try to balance the upcoming two-year budget. One of the positive legacies Gov. Dannel P. Malloy left behind was a $1.2 billion emergency reserve, which is expected to grow to $2.1 billion by the end of the current fiscal year. Those funds should only be used to deal with the next economic downturn, or some other calamity like a major natural disaster.
However, lawmakers will be tempted to draw on that reserve to deal with present-day deficits, especially if it means they won't have to make cuts to municipal aid, social services or education, raise taxes, or ask state labor unions for more givebacks.
Lamont promised during the campaign to make structural changes to the state budget that end the continuous cycle of deficits that have plagued Connecticut for more than a decade.
To make good on that pledge, he'll have to avoid using the rainy day fund, or at least keep the majority of it intact. Using one-time revenue sources is one of the oldest budget gimmicks in the book. It simply allows policymakers to postpone difficult decisions to a later date.
To his credit, Lamont has been resistant to the idea of relying on budget reserves, but he also made a lot of promises on the campaign trail — not to raise key tax rates and to restore the property tax credit — that will make balancing the budget a major challenge.
He may have already hinted at one of his solutions — ending the sales-tax exemption for groceries, medications and other long-exempt items, an idea floated last week that would hit lower- and middle-class residents particularly hard.
His first priority should be continuing to cut government spending and forcing state labor unions back to the negotiating table for further givebacks.
If a recession does hit, it would be poor timing for Connecticut, which just recently is starting to see more positive growth rates.
But the state has little control over those larger economic forces. What it can control is how it prepares and reacts to them, and responsible budgeting is a key part of the equation.
