By: Russ Colbert
Winter 2019 (Vol. 36, No. 4)
The U.S. economy has been improving since early 2018. It has weathered rate hikes, trade conflicts, tweets, corrections. We feel 2018 GDP should come in around 3%. A year ago most were predicting 2.5% for 2018. This growth is benefiting from having lower tax rates on corporate profits and the roll back in regulations. The tax cuts and regulation roll backs should benefit the U.S. economy for years to come. Companies, as well as investors around the world have started to view the U.S. as an attractive place to invest and operate.
We also believe the unemployment rate will continue to gradually fall as we see continued job growth. During the past year we have seen non-farm payrolls up around 210,000 per month and small-business start-ups at 200,000 per month. The average hourly earnings are up 3.1% from a year ago. This is the fastest wage growth in a year since 2009. Wages and salaries for private industry workers are also up 3.1% from a year ago. A survey from the Labor Department showed the fastest wage growth for the bottom 10 percent of earners. It seems to be a positive effect for most everyone. Rising wages seem to be drawing more workers back into the work force. Improved policies lead to faster economic growth and a more plentiful job market.
As far as inflation is concerned, it looks like we came in around 2.0% for last year. Last year we had a drop in oil prices that helped keep inflation down. Look for oil to rebound somewhat this year assisting inflation to come in around 2.5% for 2019. Gas prices have been down and that helps improve the pocket book for consumers. Hopefully gas will stay in the more reasonable price range this year.
What to expect from the Federal Reserve chairman on interest rates this year? This one is harder to figure out. In my opinion, I thought we could have left off the rate hikes in October or December. I believe that had a lot to do with the drop in the market during the last quarter of 2018. The Federal Reserve did catch a lot of negativity from everywhere because of it. We feel that due to economic reasons affecting our economy and other factors, such as economies slowing in Europe and Asia, as well as technical factors dealing with current yield on the 10 year Treasury bond, that rate hikes should be fewer for 2019.
We expect the stock market to rise this year. Much will have to do with interest rates staying in check or rising only a few times. The other tricky thing will be working out an equitable trade agreement with China. I believe these two items can be accomplished. It is financially in the best interest of China to work with us as a trade partner. So, we are still bullish and expect the economy and stock market to continue to improve during 2019.
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Senior Portfolio Manager
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.