2019 An Economy In Search of New Growth
2018 economically started strong as the tax cuts kicked in, but over time the combination of higher interest rates & Quantitative Tightening (Federal Reserve printing less money) caused a shift to higher growth to lower growth. Housing & manufacturing gradually weakened further and current indicators will continue to despite interest rates beginning to fall.
As we enter 2019, I liken the economy as one in search of a new growth catalyst. With expectations down shifted to only 1-2 interest rate hikes (IF THAT) it appears rates won't be a drag on growth vs 2018. However, Quantitative Tightening will likely continue and global growth outside the US nothing exciting both weigh on growth overall. So what can act as a growth catalyst? Well with Congress split its unlikely coming in the form of more tax cuts or higher fiscal spending. With 2020 an election year and all told the economy downshifting to 2%-2.5% GDP growth at best (with bias to slower not fast growth) the administration's only card to play is trade. That is why we expect a deal in 2019 which will act to stabilize growth at the above rate range.
So how to plan for 2019? Well for sure we will see slower growth and if a trade deal doesn't materialize we can see sub 2% growth which for some may feel recessionary, but technically not so. Nonetheless, in 2018 we recommended to our business owner clients to prepare for slower growth after a period of higher growth, the opposite may occur in 2019. Depending on the trade resolution timing we may start the 2019 year weaker growth than what we exit with. That doesn't mean business owners should necessary shift to higher risk in 2019 vs 2018, but approach investments with cautious optimism. Which by the way is compared to outright panic now about a recession which we don't agree.
Thus, overall plan for a decent year economically, but not a stellar one where wage pressure & labor shortages still exist and growth is slower. A 2019 year where to grow profits at same rate as 2018 may require better resource allocation to offset slower growth. With growth hinged on trade resolution caution should be used when considering expansion or M&A for sure. Maintaining adequate working capital liquidity and refraining use of leverage/debt is recommended as well.
The advice we lend to business owners on resource allocation to improve profits is grounded by these economic assumptions as they will affect not only risk but return on those resources. That is why at TheProfitConsultant.me we provide CFO like services that uniquely combine Accounting, Finance & Economic skills to boosting profitability.