As we begin a new year, it's important to examine the factors that are driving our economy and gain an understanding of the trends that may affect your business. Bob Morgan, economist with ProBank Austin, shares his insight as to where we're headed in 2019.
"Real GDP (gross domestic product) growth had been relatively slow from 2010-2017, only averaging 2% versus the historic average of 3.3%. We finally saw that trend moving in a positive direction this year driven mainly by increased consumer confidence and personal consumption. Personal consumption equals almost 70% of the US GDP," states Morgan. With the unemployment rate being at a 50-year low at 3.7% in October, Morgan feels consumers will continue to spend as they're confident they could get a better job with good pay if needed. According to Morgan, as of October there were 7.1 million jobs available in the US and only 5.9 million were actually looking for a job. "Eventually this need for qualified workers will increase competition in the job market and force wages to increase," comments Morgan.
On the business side, the political environment has reduced confidence somewhat causing businesses to hold off on making large purchases or expanding. Manufacturing is growing at a rapid pace, however the uncertainty due to tariffs on items such as aluminum and steel may affect some of our largest industries, including automobiles. Add to this the strength of the dollar against foreign currency and it makes US exports expensive. This is causing an increase in our trade deficit which is, in Morgan's opinion, the biggest factor in holding back the US economy.
What to Watch in 2019
As average hourly earnings increase, so will inflation. Even though Morgan doesn't feel there is a possibility of recession in 2019, he does have concerns as the yield curve is flattening with long-term rates and short-term rates currently being almost equal. He encourages businesses to continue to expand as needed, borrowing long-term at fixed rates if possible. He's optimistic about the economy for 2019 predicting a 3-3.5% growth in real GDP.