Five Questions With: Peter Nigro

Peter Nigro is the Sarkisian chair in financial services at Bryant University. He spoke to PBN about the economic outlook for 2020 and the possibility of an economic downturn.

PBN: Fears of an economic recession seem to have abated with the latest Federal Reserve predictions. What is your take on Fed’s outlook?

NIGRO: The Fed is cautiously optimistic. Many of the issues that existed three months ago, when we were more fearful of a recession, remain: mixed tariff signals – still no real clarity; manufacturing down; and the European slump. Geopolitical risk remains out there as well – increasing in North Korea and the Middle East. An oil price spike or a North Korean “present” could lead to increasing consumer worries precipitating a recession. Spending habits of consumer are critical to economic growth and they can be very fickle.

Business investment remains a concern as well – since the tax cuts really have not led to increases. Furthermore, businesses are known to avoid making key decisions in an election year – this wait and watch could have a negative impact on [gross domestic product].

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Finally, I remain concerned about potential problems in the shadow banking area – financial activity that has moved outside the more regulated banking system. For example, nonbanks account for more than half of new mortgages. How susceptible are these unregulated lenders to a potential decline? Fintech firms, in general, pose similar concerns.

PBN: What signs, if any, point to a recession in our local economy?

NIGRO: Not a lot of tea leaves there. The only negative is that we are as a state running a $180-200 million deficit that needs to be closed, so its spending cuts or increasing taxes – neither a good option.

PBN: What should businesses and consumers know when planning their finances for the upcoming year?

NIGRO: Continue to build a financial cushion and be ready for a downturn.  It’s always better to be safe than sorry. On the investing front, don’t try to time the market; maybe be a little more risk averse in 2020. Finally, adjust your 401(k) portfolio … after a big year in equity markets, it’s probably time to reallocate.

PBN: If we do hit a recession, how will it compare with its 2008 predecessor? Is the local economy any better prepared to weather it than it was in 2008?

NIGRO: The 2008 recession was an outlier; it is highly unlikely that we will experience a recession of that magnitude. This is good news since the tools we have to pull out of it, however, are not as strong.

The Fed’s balance sheet remains over $4 trillion, limiting the potential impact of further [quantitative easing] and there is not a lot of room to cut rates further.  The Fed’s three cuts last year are leaving less room to adjust going forward.

Rhode Island was one of the worst-hit states in the great recession due to a more pronounced boom and bust housing cycle and a manufacturing sector that experienced high job losses. Today, R.I. is much less reliant on manufacturing while health care and tech are becoming increasingly important, which bodes well in a downturn.

PBN: How can national politics, including the December impeachment hearings and 2020 elections, affect the state economy?

NIGRO: Consumption constitutes over two-thirds of GDP. National politics, including impeachment, can impact consumer confidence and spending. Further, it could impact corporate investment and spending. The Trump tax cuts have led to a booming stock market but an increasing budget deficit. Political changes will likely lead to a reassessment of tax and spending policy.

Markets also don’t like unpredictable outcomes. … The impeachment proceedings [and] the 2020 election are causes of uncertainty and could influence both the local and national economy.

Nancy Lavin is a staff writer for the PBN. Contact her at lavin@pbn.com.