2018 economic forecast
January 17, 2018
By Michael Burns, courtesy of SBAM Approved Partner ASE
The National Economy
The stock market soared in 2017 as the promise of tax reform became actual legislation. The stock market is considered a leading indicator. The belief is the stock market’s direction indicates what investors think will happen in six to twelve months in the economy and to the companies that are publicly traded.
Since the recovery began back around 2009, the US economy has plodded along at a growth rate under 2.2%. As the US economy continues its growth pace into 2018 and with the passage of tax reform, the government hopes the US economic growth will increase substantially. A Wolters Kluwer Blue Chip Economic Indicator survey of 52 economist conducted in December 2017 (before passage of tax reform) forecasted 2018 growth at only 2.6%. It is projected, though still speculative, that growth will accelerate even more when the tax changes are fully realized by business.
As of last Friday, the US unemployment rate is a steady 4.1% and is expected to go lower. Economists in the aforementioned study opined that average monthly job growth will be slowed from about 174,000/month to about 160,000 new jobs per month in 2018 due to this situation. Consistent with this theory, the Bureau of Labor Statistics just reported December jobs grew at 148,000. This slower job growth is making it harder for employers to find qualified workers. In theory, this should lead to the long anticipated pressure for wage increases. The downside may be that it will force employers to employ less skilled or other under-employed workers to fill the gap in labor.
The economists in the survey said they saw consumer spending increasing 2.5% due to more worker buying power and the tax cuts anticipated to hit employee paychecks this year. Consumer spending is 70% of the US economy. Business investment is projected to be 4.7% this year, but the surveyed economists projected it could reach 6% in the coming year or so.
According to WardsAuto, Michigan’s Auto Industry based economy has reaped the benefits of one of its longest periods of recovery-growth since the auto industry was founded. It’s been in a period of recovery-growth for seven years now. However, in 2017, US new vehicle sales declined by 1.8%. It has been long acknowledged that peak market for sale of cars and light trucks in the US was somewhere about 17.5 million vehicles. Auto sales dropped to 17.2 million in 2017. This is projected to further drop in 2018 to just 16.8 million cars by Edmunds.com, an auto information web-site cited by the New York Times (NYT). The NYT cites several forces in play that will continue to put pressure on auto industry sales: higher loan interest rates, rising fuel prices going forward, and surprisingly the quality of cars is better to the point it allows car owners to keep their cars longer forestalling a new purchase. One factor that could provide a temporary uptick in auto sales is reported to be the loss of over 500,000 vehicles in the hurricane floods this year. One other spot of promise is global auto sales are increasing.
Any slowdown in auto sales will eventually be felt in Michigan.
So far Michigan continues to reap the benefits of a strengthening US economy and the auto industries robust sales into this year. Charles Ballard Ph.D. MSU and David Sowerby economist from Loomis, Sayles & Company presented the results of its fifth annual Michigan Economic Outlook Survey last week at the Detroit Economic Club. The survey showed Michigan “improved in almost every measure. This includes Michigan as a place to start and grow business.” They surveyed 2,500 business people and 135 associations.
In comments at the DEC event, Sowerby opined that the biggest challenge to employers going forward will be “to find the right worker to be in the right place, and to have further economic growth.”
November Michigan’s unemployment rate continued to drop with 13 of 17 of the state’s labor market areas showing declining unemployment. “Monroe and Detroit-Warren-Dearborn labor markets decreased 1.6% and 0.6% respectively.” November Unemployment Rate Declined in 17 Michigan Labor Markets. Statewide unemployment for November came in at 4.6% (preliminary).
ASE is in the process of its annual data collection on wage and salaries in Michigan. This data will provide a fresh look at where compensation is heading in 2018. ASE members are encouraged to participate so it can benefit from the latest information on attracting and retaining the talent it has in this economy. Visit the Survey Participation Center on our website for more information or to participate.