[vc_row][vc_column][vc_column_text]Editor’s note: This article is part of a series on external trends impacting small and medium size businesses in 2020. We study economy in three main sections: the U.S. Economy, Global Outlook and Key Industries. Other articles in this series:

Ecological trends
Social trends
Technological trends
Political trends


The U.S. economy is a story of the haves and have nots. Consumer-facing sectors such as services and technology are driving valuations in a resurgent stock market, while old-world industrial businesses are directly impacted by tariffs and a recessed manufacturing sector. On the heels of a tax cut and low interest rates, business investment is waning.

Yet consumer spending comprises 70% of GDP, and consumers seem willing to sustain the expansion for yet another year.[i] Buoyed by job growth and higher wages, a strong holiday season is expected. Lower interest rates have fueled a spike in residential investment.

Entering 2020, business owners are skittish about the economy (as evidenced by a tepid Vistage CEO Confidence Index). Tariffs are viewed as a cloud over the U.S. economy. CEOs are also concerned that the presidential election could result in structural changes to the U.S. tax and regulatory environment.[ii]

The fragile global economy may not be capable of withstanding shocks, such as negative interest rates that could plague Europe in 2020. Yet most economists, even those who thought we would be in recession by now, believe that 2020 will present nothing more than a “slowdown.” The Federal Reserve’s recession model predicts only a 35% chance of recession this year.[iii] The much-reported negative yield curve went as quickly as it came. As ITR economist Brian Beaulieu likes to point out, our fascination with the ebbs and flows of the economy may actually distract us from the things we can control.

While the press continues to predict doomsday as a result of the trade war, the U.S. remains the world’s prominent superpower and economic engine. While China has slightly higher GNP ($23 trillion vs. the U.S. $20 trillion), it remains a much poorer country with a per capita income of $17,000.

In the long term, to divert a downturn will require a perfect blend of consumer spending, a reversal of U.S. trade policy and the absence of any major shocks (such as a downturn in China or a real estate bubble).

The U.S. Economy in 2020

Key U.S. indicators

The bottom line: with U.S. industrial production waning, B2C (business-to-consumer) companies have more momentum headed into 2020 than B2B (business-to-business) companies.

Key U.S. Indicators
2019 2020
GDP (Real) 2.5% 2.1%
–Personal Consumption 2.5% 2.2%
–Gross Private Investment 2.9% 2.5%
–Government Consumption 2.3% 1.7%
–Net Exports 1.8% 2.6%
Interest Rates (T Bills) 2.0% 2.0%
(until trade war ends)
Inflation 2.1% 2.0%
Job Growth 170,000 per month 150,000 per month
Unemployment 3.7% 3.7%
Residential Investment -1.5% 4.6%

Sources: Kiplinger, Congressional Budget Office and The Conference Board

Four pillars of GDP

As we transition into 2020, consumers are spending. The Fed is expected to keep interest rates low through next year. While consumers remain optimistic in relative terms, they do not have the same infusion of cash as provided by tax cuts in recent years. Home construction surged in Q3 for the first time in seven quarters.[iv]

Corporate profits have surpassed expectations and fueled a surging on Wall Street. Domestic non-financial companies have not returned to the profits reported at the end of 2018. While government spending should remain on pace in 2020, the federal government will be forced to reign in a deficit which has swelled to over 4% of GNP.

Tariffs, manufacturing and business investment

Tariffs, NAFTA reforms and ongoing angst about Brexit have thrown foreign trade into a tailspin. A recent escalation of U.S. sabre rattling coupled with China’s retaliation has upped the ante. China let its currency devalue by another 2%, leading to the U.S. formally accusing China of being a currency manipulator.[v]

The primary impact of tariffs has been realized within the U.S. manufacturing sector. Since the 2016 presidential election, the U.S. has added an impressive 485,000 factory jobs, but only 44,000 have been added this year.[vi]

The jury is still out on which country is losing more in the trade war. Given the existing trade imbalance, tariffs have resulted in a loss of $15 billion in U.S. exports while reducing Chinese imports by $53 billion. Trump has also levied steel and aluminum tariffs on Brazil and Argentina and proposed a new retaliatory tariff on France (in response of a tax on U.S. technology companies).

As we wrote in this series last year, it is uncertain whether tariffs are merely a bargaining chip or represent the long-term trade policy of the United States. U.S. manufacturers are in an untenable position, having to make difficult choices about their global supply chain in a shroud of uncertainty. In their effort to move production to other regions of the world such as Vietnam, Singapore and Mexico, manufacturers have found local infrastructure and support industries unreliable. While countries such as Vietnam have lower labor rates, their shipping routes are erratic and less frequent.

Yet large U.S. customers such as Walmart and Best Buy are asking their vendors to find alternatives, even at higher prices. The longer that tariffs are in place, the more options U.S. companies will have.

Recent signs of progress in the trade wars are welcomed by a recessed manufacturing sector. September factory activity hit a 10-year low. The Institute for Supply Management bellwether manufacturing index fell to 47.8 in September, its lowest in 10 years.[vii] According to IHS Markit data, Q3 was the worst manufacturing sector performance since 2009. A strong dollar is further curtailing imports.

US Industrial Production

Interest rates and debt

Escalating U.S. debt is putting pressure on the Fed. To keep interest rates low, the Fed is buying up treasury bonds and mortgage-based securities (also known as quantitative easing). [viii] The Fed is reported to be braced for a large-scale purchase of U.S. treasuries.

The business press has raised the threat of China dumping its U.S. bonds as a retaliatory measure to disrupt U.S. markets (China holds over $1 trillion of U.S. debt). Yet this prospect seems unlikely as there will always be a market for U.S. debt around the world, and a selloff would do little to injure U.S. markets.

Meanwhile, corporate borrowing has once again run amuck. Today there are over $1 trillion “leveraged loans” held in collateralized instruments.[ix] Less are held by U.S. banks, which are better regulated than they were during the liquidity crisis.

M&A and consolidation

2019 brought about further consolidation of market power. Today many U.S. industries have become oligopolies with four or fewer companies controlling industries spanning from airlines to networking sites, home improvement stores to pacemaker manufacturing, and even beer (some of it not very good beer I might add). In these industries, few powerful companies have created almost insurmountable barriers to entry. While the U.S. government has allowed deal-making to go unfettered, technology companies are looking over their shoulders for potential U.S. anti-trust action.

While the IPO market went soft in 2019, there are several significant IPOs slated for 2020 including Airbnb and Saudi Aramco (expected to be the biggest in history with a valuation approaching over $1.5 trillion).

Private equity continues its charge, comprising 68% of U.S. buyouts. Average mid-market multiples swelled to 10.7x earnings in Q3.[x] Finance and technology companies comprise about one-third of all transactions.

See U.S. Growth by State

The Global Outlook

Global Output
2019 2020
Advanced Economies 1.7% 1.7%
     –U.S. 2.4% 2.1%
     –Eurozone 1.2 1.4
     –Japan 0.9 0.5
     –Canada 1.5 1.8
Emerging Markets 3.9 4.6
     –China 6.1 5.8
     –India 6.1 7.0
     –Latin America 0.2 1.8
     –Middle East 0.9 2.9

Source: IMF

Global economy

2019 was mired by the trade war, which significantly impacted confidence around the world. The IMF predicts that emerging markets such as India, Mexico, Russia and Brazil (which had slumped) will perform better in 2020 than in 2019.[xi] While the tariffs levied on China are significant (affecting about half of U.S. imports from China), they impact less than 3% of the Chinese economy. The trade war is expected to reduce global GDP by $700 billion in 2020.

Global commodity prices

Oil prices are expected to soften in 2020 from an average of $62 per barrel in 2019 to $58 in 2020 due to weaker demand.[xii] Supply shortages in Russia, Venezuela and the Middle East may have masked a softening this year.

The new steel and aluminum tariffs levied against Brazil and Argentina are intended to counter severe devaluations of currencies that have artificially boosted exports. Metal prices which increased 4% in 2019 are expected to drop 6% next year. Some metals such as nickel and copper have been volatile this year. However, IMF expects iron ore and nickel prices to rally. After contracting in 2019, food prices are expected to rise 2.8% in 2020.


The Chinese economy is also skittish, and a downturn there could precipitate a global recession.

As of this writing, China and the U.S. are wrangling over final details of a potential “phase one” trade deal. Even if one is reached, complex disagreement will persist – including subsidies of state-run companies and technology transfers. As we approach 2020, China is redirecting its exports to Korea, Vietnam and Mexico.

In Q3, China’s economy grew at the slowest rate in three decades as companies ratcheted back investment.[xiii] State-run companies have a return on capital that is about half of U.S. companies. There is significant movement within the Chinese economy, where the service sector now represents 46% of employment.[xiv]

Like in the U.S., growth is being fueled by consumerism. Retail sales are still growing and unemployment hovers around 4%. However, car purchases will be down around 5% this year. Bankers are watching China with curiosity to see if its Central Bank unleashes more liquidity or manipulates its currency.


Europe is in a slowdown amid a softening in foreign demand and slowing industrial production.[xv] Leading economies such as France and Germany are trading less with each other in a weakened European Union. For example, Germany’s auto exports to the UK are down 23% since 2016, as the pound has lost value against the Euro.[xvi] Brexit continues to cast a shadow on the British economy, which contracted in Q2 and is expected to grow 1.4% in 2020.

Countries less reliant on industrial production and exports (such as Spain) are faring better. Like the U.S. and China, European consumers are still spending during a time when confidence is waning.


Japan’s economy remains sluggish as private consumption, government spending and fixed investment moderated in 2019. Exports contracted in Q3 and Japan’s attempts to add stimulus have proven ineffective. The trade war, higher tax rates and typhoons are shackling GNP, which is expected to be flat in 2020.[xvii]

Mexico, Latin America and Central America

Political uncertainty has caused a strain on Latin American economies. The region is in flux as the humanitarian crisis in Venezuela and neighboring countries has taken a toll. Venezuela’s economy is expected to contract another 8% in 2020, while Argentina’s will slide 2%.

Softer demand has plagued Brazil and Mexico where there is little investment amid lower confidence and private consumption. Even with U.S. companies diverting production there, Mexico is only expected to grow 1.3% in 2020.

Other economies such as Brazil, Peru, Paraguay and Bolivia are expected to grow 2 to 3%. Brazil and Chile are easing monetary policy, which will provide some relief as inflation has been running about 8%.

Central America has been more stable, with inflation running about 2%. While Costa Rica and the Dominican Republic have experienced slowdowns, there is greater momentum in Costa Rica and Panama.

Key Industries


It is predicted that U.S. farms will have the best year since 2014, yielding nearly $90 billion in income in 2020. Roughly 40% of income is federally subsidized, and farm debt is growing.[xviii] Larger corporate farms are expanding their advantage by utilizing various IoT (Internet of Things) technologies.

Aerospace and defense

The biggest news in the aerospace and defense sector in 2019 was the grounding of Boeing’s 737 Max. As the FAA winds down its review, Boeing has over 5,000 orders from customers worldwide. Chinese and European regulators are looking into the plane’s dicey development and certification history. [xix] Prominent buyers such as Southwest and United Airlines are creating systems to notify passengers who fly on the Max (65% of passengers pay no attention to what type of plane they are on).

After a slowdown in 2019, global defense spending is expected to grow 3% in 2020 to $1.9 trillion.[xx]

Late deliveries have plagued the commercial aviation sector. As of August, backlogs had slowed to 14,000 aircraft, as original equipment manufacturers (OEMs) shift production toward regional jets, drones and other spacecrafts.

Amazon and retail

The death of the American mall has been greatly exaggerated. The recent opening of New Jersey’s American Dream Meadowlands, a 3 million-square-foot shopping and entertainment complex, sports the world’s largest indoor theme park.

Yet the traditional mall is under attack. In particular, tweener brands are struggling. While Lululemon and Gucci are boasting double-digit growth, mall stores like Dillard’s and Abercrombie are struggling for relevance in a sea of sameness. Discounters are preparing for belt tightening by U.S. consumers.[xxi]

In a testament to the current state of affairs, Amazon increased its base of fulfillment centers from 65 in 2013 to more than 400 today. Amazon’s recent split with FedEx is perhaps the latest domino in a major shift in supply chain logistics.[xxii]

Today, perishables are fulfilled through Amazon Pantry, Amazon Fresh and Whole Foods. Through Prime, Amazon offers one-day shipping for 10 million items to almost every urban center on the East Coast and in Texas. An announced partnership with Rite Aid this year expands Amazon’s footprint, and it is likely Amazon will partner with other retailers.

Amazon is also impacting the shift to “marketplaces.” Sixty percent of the company’s revenue is through third party vendors. Altogether, ecommerce marketplaces boast 120 million items for sale, or about 10x the inventory of Walmart.[xxiii] To counteract the advantages of speed and selection, channel retailers are finding very specific niches in which to specialize.

Among the fastest growing industries is food delivery, with Uber, DoorDash, Amazon, Grubhub and others vying for market leadership.[xxiv] Consolidation is expected in an effort to thin the herd.

Industry Growth Rate
Q2 Growth
Agriculture 7%
Mining 3.3%
Utilities 2.6%
Construction -0.1%
Manufacturing 5%
Wholesale Trade -4.1%
Retail Trade 0.1%
Transportation and Warehousing -0.9%
Information 2.2%
Professional Services 7.8%
Education and Healthcare 0.6%
Entertainment, Hospitality and Recreation -0.9%


The industry contracted in 2018 for the first time since the global financial crisis. The adoption of new emissions standards in Europe has created a strain, especially for German automakers. The industry, which represents about 6% of the world’s output, has a huge global footprint and consumes a tremendous amount of commodities such as metals and plastics. Thus, sluggishness in the sector has a deep impact on the global economy.

Headed into 2020, automakers face structural threats including global economic headwinds, ridesharing services and the adoption of electric vehicles. It is predicted that by 2040, “shared mobility” will account for 80% of miles driven.[xxv]

The confluence of these factors is impacting the supply chain. While suppliers in electronics, battery and fuel cells are on the rise, traditional segments such as axles and brakes are showing fatigue.

Construction and housing

The housing sector is struggling to arrest housing prices that have spiraled out of control. Cities such as Minneapolis and Reno are passing new ordinances designed to promote multi-family housing.[xxvi] Oregon recently passed a moratorium on rent increases. In many U.S. cities the average home price has swelled to over 5x average net income. Residential investment is expected to rise 5% next year. Overall, construction is expected to grow 1.7% in 2020.

Construction has been particularly impacted by labor shortages and higher minimum wages that have diverted low-skilled workers to hospitality and fast food.


Global expenditure on healthcare is growing at a 5.4% clip and will represent $10 trillion by 2022. Perhaps more primed for disruption than any other industry, healthcare is poised for telemedicine, personalized care, new payment systems and the entry of non-traditional providers who are impacting healthcare’s ecosystem.[xxvii]

The U.S. presidential election will also serve as a referendum on universal healthcare, at a time when many of Europe’s nationalized systems are under severe economic strain.

In the U.S., the Medicare Access and CHIP Reauthorization Act are taking effect, shifting payments to be more incentive-based. Providers such as hospitals are shifting to “alternative points of care.” Consumers are also expecting better safeguards for their privacy, and more transparency in billing. Headed into 2020, regulatory compliance and cybersecurity are top concerns for providers.

Following 24 months of mega-deals in Pharma, the industry is experiencing declining R&D returns and a backlash on runaway prices. More than 250 startups have entered the fray, as traditional life science companies are seeking combinations with technology companies that have inventive delivery systems.


In September, the global Purchasing Managers’ Index (PMI) remained at around 50 for the fifth straight month, illustrative of an eroding manufacturing sector.[xxviii] In August, the U.S. PMI slid below 50 for the first time in three years, only to recover slightly in September.

While there are large swings in growth by sector (some U.S. companies are importers and some exporters), the U.S. manufacturing base is still growing. Deloitte projects a 1.3 percent increase in 2020.

Tariffs are not the only constraint in U.S. manufacturing. Job growth slowed to about 6,000 per month in the latest quarter, a reflection of both automation and a tightening job market. Eroding confidence is impacting industrial investment. Headed in to 2020, manufacturers are diversifying their product and supply chain portfolios. They are building digital solutions that allow them to ebb and flow with demand, and perusing outsourcing and partnerships that reduce their risks.


Tech is under a microscope in both the European Union and Washington D.C. Congressional hearings over the summer brought executives from Google, Amazon and Apple to the Hill to appease concerns about antitrust, privacy, child predators and news coverage.

The adoption of hybrid-clouds is an interim step in a phase of digital transformation, amid a mashup of cloud-based applications and cybersecurity concerns plaguing the industry. Multi-cloud solutions abound. Over 50% of enterprises have built multi-cloud networks using a combination of vendors such as Amazon Web Services, Microsoft Azure and Google Cloud.

In 2020, among the most important emerging technologies will be cybersecurity artificial intelligence solutions. Edge computing is also taking form and will be the hub for a myriad of IoT technologies utilized within industry and commerce.


[i] The Year Ahead, Bloomberg Businessweek, October 28, 2019
[ii] CEO Anxiety on the Rise by Hugh Son, CNBC
[iii] The Year Ahead, Bloomberg Businessweek, October 28, 2019
[iv] Consumers, Home Buyers Keep Growth Afloat by David Payne, Kiplinger, November 1, 2019
[v] United States Economic Forecast by Bachman and Majumdar, Deloitte Insights, September 17, 2019
[vi] The Recession is Here by Cristina Lindblad, Bloomberg Businessweek, September 16, 2019
[vii] Slowing Trade Hits Global Manufacturing by Omeokwe, Hannon and Hufford, WSJ, Oct 1, 2019
[viii] Quantitative Easing, Bloomberg Businessweek, May 27, 2019
[ix] How Dangerous is All This Debt by Regnier and Rocks, Bloomberg Businessweek, June 17, 2019
[x] FactSet Flashwire, US Monthly, October 2019
[xi] 2020, 2020, 2020, Bloomberg Businessweek, October 28, 2019
[xii] World Economic Outlook, IMF, October 2019
[xiii] China, Focus Economics
[xiv] Bracing for a Slowdown by Sitao Xu, Deloitte Insights
[xv] World Economic Outlook, IMF, October 2019
[xvi] Eurozone Economic Outlook by Alexander Boersch, Deloitte Insights
[xvii] Japan Economic Outlook, Focus Economics
[xviii] The Kiplinger Letter Vol 96 No 45
[xix] The 737 Max Tries to Regain Altitude, Bloomberg Businessweek, October 28, 2019
[xx] 2020 Global Aerospace and Defense Industry Outlook, Deloitte
[xxi] Retailing’s High Low Squeeze, Bloomberg Businessweek, October, 28, 2019
[xxii] How Amazon’s Shipping Empire is Challenging UPS and FedEx by Herrera and Quinn, WSJ, Aug 29, 2019
[xxiii] The Kiplinger Letter Vol. 63 No.28
[xxiv] The Year Ahead, Bloomberg Businessweek, October 28, 2019
[xxv] Caution Ahead, Deloitte insights
[xxvi] Not Everyone Loves a Boom, Bloomberg Businessweek, October 28, 2018
[xxvii] 2019 Global Healthcare Outlook, Deloitte
[xxviii] 2020 Manufacturing Industry Outlook, Deloitte[/vc_column_text][/vc_column][/vc_row]