J.P. Morgan chief global strategist David Kelly.(Photo: Jim Tweedie)

As the market fell in the fourth quarter of 2018, a lot ofpeople thought the economy was headed to a recession. David Kelly,chief global strategist for J.P. Morgan Asset Management, was notone of them.

“I don't think we're headed for a recession this year,” he saidat the Investment & Wealth Institute's Investment AdvisorForum. “I think there is enough momentum coming off a very strong2018 to keep us going.”

According to Kelly, U.S. economic growth should slow but notstall in 2019.

Kelly said he has called the American economy a “healthytortoise” for years.

“It has ambled forward happily, with a smile on its face,growing at 2.3 percent, on average, during this expansion,” heexplained.

That was until “something funny” happened last year.

“Last year, the American economy got a huge shot of caffeine,”Kelly said. “Because of this tax cut, [which] was very unusual inthe tenth year of an expansion, … we got a huge surge inparticularly consumer spending. People say the tax cut was aimed atcorporations, but actually it wasn't.”

According to Kelly, 77 percent of the benefits of the tax cutwent to small businesses and individuals, which adds power toconsumer spending.

“Consumer spending was very strong in the second quarter, in thethird quarter, [and] even into the fourth quarter … and that helpedgrowth accelerate to about 3 percent year over year,” Kellysaid.

However, similar to a caffeine or sugar rush, the effects of thetax cut on the economy fade.

“This is just a sugar rush, basically. As you go into this year,consumer spending is slowing down,” Kelly said. “The tax cuts aregood, but they raise consumer spending to a higher level but theydon't do further growth thereafter. The tax cuts are in place, sothey're not going to add to growth now.”

This is why Kelly expects that this year the U.S. will have a“decaffeinated economy.”

“Growth of consumer spending is going to slow, growth ofinvestor spending is not that strong, [and] the global economy isslowing down,” he said. “All of these things say that we are goingto slow down.”

Originally, Kelly said, he thought the economy would get throughthe second quarter of this year before the slowdown hit.

“In the second quarter we get one last refill of caffeine, andthat is the alternative minimum tax, … which was going to be a bigtax cut for select middle- and upper-income households in April,”he explained. “And that was going to help us. And that is [still]going to help us. The problem is the government shutdown itself and the uncertainty caused by the trade war has putsuch a break in the economy in the first quarter that I think we'recoming in for a soft landing a little earlier than we hoped.”

Kelly emphasized that he thinks the economy can still keepgrowing.

“Even though the economy is slowing down, it doesn't mean it'sslowing down to a crawl,” he said. “It doesn't mean it's slowingdown to a stall; it could just slow down from 3 percent growth to 2percent growth.”

From: ThinkAdvisor