New York Federal Reserve economist Richard Peach, speaking at the Foundation for Accounting Education's Business and Industry Conference on Oct. 16, said that while there are some worrisome signs coming from the global economy, other indicators, such as jobs and housing, remain strong, which made him skeptical that the current slowdown will tumble into a full recession anytime soon. 

"Now, there are a lot of fears that the U.S. economy will tip into recession. And one can never rule that out as a possibility. But I'm going to try and make the case that it is not the most likely event," he said. 

Peach said that the current state of the global economy most resembles the period between 2014 and 2015, which saw a similar slowdown in the global economy, but did not reach the level of another recession. He said that "we will weather this storm as we weathered 2015." 

One similarity 2015 has to do today is what's happening in China and Germany. Peach said that today, much like four years ago, the United States is being affected by a foreign demand shock—that is, an externally based reduction in spending impacting the internal economy. He noted that, from 2013 to 2014, China experienced a step down in growth from a massive 9 percent annually to a still-impressive but far lower 5 percent. China, he said, can be thought of as "the marginal source of demand for the entire global economy." The impact of this slowdown came to affect many countries but Germany in particular. Since exports account for nearly half of the Germany economy, 48 percent, which includes items such as cars and capital goods, the Chinese slowdown in turn affected the German export economy (he noted that a third of BMWs are shipped to China, for instance). This then had ripple effects throughout the world. Much like the economic situtation back then, Peach said, today China is experiencing a growth slowdown, which is affecting the German economy in a similar way, which in turn is rippling out across the globe once more. 

"So now we see another episode where quarter-rate growth in China is moving down—not as pronounced, but there is a slowing pace—and fed through what's going on in Germany, and what's going on in Germany is even worse than in the previous episode," he said. "So that's how important and interconnected those two economies are."

Similarly, Peach said that the spot prices for copper and Brent crude oil (named after the North Sea oilfield where it is extracted) are similar to where they were in 2015 and are having similar impacts as well. Both copper and oil, he said, have become good indicators for global economic conditions because as countries advance, they tend to introduce or increase air conditioning, which requires copper piping to build and oil to run; this has happened, he said, not just in China but in other countries like Indonesia and Vietnam. In 2015, he said, the spot prices of both copper and Brent crude oil took a steep plunge, as demand for both products dropped along with the global economy. Peach said we're seeing similar movements in 2015. 

"The point I make is that what is happening to the U.S. is an external shock to U.S. economic conditions," he said. 

While he observed that the trade war and tariffs certainly constitute a factor, he said that it's not the most important one; rather, the major issue, as in 2015, is a slowdown of Chinese domestic demand. The Chinese government, he said, is currently struggling to slow down debt while maintaining consumer spending. The savings rate in China is unusually high, 40-50 percent. These savings drive credit creation, which is then funneled into investments, though the rate at which this is happening has been concerning to the government due to the potential for it to spin out of control. 

Regardless, the foreign slowdown has splashed over into U.S economic conditions, particularly in manufacturing. Similar to 2015, slowing demand has led to U.S. exports shrinking, which in turn has led to manufacturing output dropping down into negative territory on a 12-month change basis, which has in turn grown the inventory-to-sales ratio in the total business sector. Peach noted that increases in this ratio are associated with a slowing, if not outright decline, in the manufacturing sector. 

This, in turn, has affected the labor market. Peach said that manufacturing is only 8 percent of U.S. employment right now, though 18 percent of its total value. This has led to employment slowing, though "still solidly positive." 

So while these signs are certainly worrisome, Peach said he does not think they add up to an inevitable recession. While he noted that new job creation is slowing, he said unemployment levels are still the lowest they have been since the 1950s. During the Q&A section, a member said that many of these jobs are low-paying, and Peach agreed, but he said it was still a good thing because these people are in the workforce getting experience and making contacts, which they can use as leverage for better jobs in the future. 

He also said that the U.S. consumer sector is "in excellent shape." While, again, there has been some slowing of growth over the past 12 months, he said income has still grown 3 percent in real terms, which "is pretty darn good," while consumer spending is growing by 2.5 percent. 

"A 2.4 percent growth of the sector of the economy representing 70 percent of GDP is a very good place to be," he said. 

Peach also found housing data to be encouraging. There has been a full 1 percent decline on mortgage interest rates over the past year, which has driven an increase in mortgage refinancing, which in turn is driving down debt obligations. With interest rates so low, he said that people are able to refinance 15-year fixed rate mortgages for very little, and he expects this to continue. 

Contributing to this situation, according to Peach, has been increased demand for U.S. Treasury bonds. With 40 percent of the world's government bonds now yielding negative, the United States has stood out as one of the few places where one can still make gains on sovereign debt. While still low, "only 1.7 percent, that's still better than negative 40 basis points." This demand has in turn fed into mortgage rates, which has led to increasing demand in the single-family home sector, which has become more affordable. 

While nodding to worries about the yield curve inverting, traditionally a sign of an incoming recession, Peach said it could be due to central bank activity artificially creating the conditions. 

"So what might be the explanation? The explanation is that there's so much central bank buying of long-term debt around the world that the 10-year Treasury yield is sort of artificially low, if you will, and the inversion of the yield curve is not giving the same signals it gave in these previous episodes," he said. 

Peach did concede that corporate profits have become a cause for worry, though. The rate of business investment has been slowing, similar to the way it did in 2015. However, Peach said that this could be a statistical effect: Because the Tax Cuts and Jobs Act introduced 100 percent expending, the tax bill may have had the effect of pulling future investments into the present, "and now we're just seeing the payback for that episode." He also noted that business investment, while down overall, has been ramping up spending on intellectual property products. Such purchases right now make up just short of half of all business investment spending. 

"The way it's increasing is another source of demand that will help us avoid a recession," he said. 

Peach also discussed the possible economic effects of a presidential impeachment. He said that many things are up in the air, but noted that during the buildup to the Clinton impeachment, there was a decline of consumer confidence, but this passed once the process formally began. Consumers believed he would not be removed from office, and regained a sense of stability. 

"In this case it doesn't seem the impeachment process has much impact on consumer spending," he said. "There was a slowing rate in growth in hours worked and income growth, which probably contributed to this leveling of consumer spending, but no sharp contractions as some might fear. But the past is not a guarantee of the future."