On February 7, FBLP family members gathered at Marquette University to welcome back economist Dr. Mike Knetter of the University of Wisconsin Foundation. Dr. Knetter began his presentation by reviewing 2018 and current state of our economy and predicted what could happen in the next year.
Dr. Knetter pointed out that 2018’s year-end stock market chaos disrupted some of his S&P prediction for last year. It was around 8 % prior to December but then ended up down -4.38 percent. The Real GDP growth finished around 3%. Unemployment remained at 3.9%. The labor for participation rate rose .5%, and wages rose .6%. Inflation rose 1.9% overall.
However, as we look to 2019 it is harder to predict what might occur because we have a few unknowns like the Russia investigation; the government shutdown/wall talks;and the fluctuating stock market.
Dr. Knetter said if he could look into a crystal ball for 2019 he would predict:
-S&P 500 Growth: 0%
-Real GDP growth: 1.7% and slowing at year end
-Unemployment: 4.1% and rising at year end
-Labor force participation: stable
-Wage growth will pick up to 3.5% at year end
-Inflation will pick up to 2.5% at year end
-US$: (trade weighted) no change
He said what is keeping the expansion going is our country’s low unemployment, rising incomes, “lighter touch” regulations, corporate and personal tax cuts and innovative companies that are leading global activity.
That being said, some observers still feel our country could be at risk for entering a recession in 2019. This is fueled in part by government shutdowns and trade disruptions; slowing foreign economies; the Fed interest rate; growing federal debt; and revaluation of assets. If too many of these factors turn negative, the economy could contract in spite of its current strength.
Dr. Knetter warned that if a recession occurs we will have little room for fiscal or monetary expansion. And, there are those, including himself, who argue that things aren’t that bad and as a general election year approaches the administration will be prioritizing economic expansion.
He said there are will three things to watch that would be key indicators of a recession: Fed policies interest rates and valance sheets to preserve current growth; if policymakers and investors will continue to ignore Federal deficits; and if our trade war will lead to better trade regimes.
Dr. Knetter said as he looks closer to home he thinks Wisconsin is sitting relatively well and that overall he thinks growth in the United States will slow down in 2019 but fall short of a recession. This again assumes the factors we can control (government shutdowns, trade friction and monetary policies) can be coordinated in support of expansion.