Monday, January 07, 2019

Question #1 for 2019: Will Mr. Trump negatively impact the economy in 2019?

by Bill McBride on 1/07/2019 02:18:00 PM

Earlier I posted some questions for this year: Ten Economic Questions for 2019. I've added some thoughts, and a few predictions for each question.

I do this every year to outline what I expect, and then - if the story changes - I can change my view.   All of the previous questions were about key parts of the economy; economic growth, job growth, wages, and especially housing.

This last question is probably the key downside risk to the economy.

1) Administration Policy: These are dangerous times.  When Mr. Trump was elected, I was not too concerned about the short term (Luckily the economy was in good shape, and the cupboard was full).   But after almost two years of chaos - and the loss of some stabilizing cabinet officers - I'm more concerned.   Will Mr. Trump negatively impact the economy in 2019?

To state the obvious: Mr. Trump is a thin-skinned narcissistic ignoramus.  He tries to make everything about himself.   He thinks he knows everything better than everyone else.  He reacts viciously to the slightest criticism.  And he stopped reading and studying decades ago.   Not a good combination of traits.

So far Mr. Trump has had a limited negative impact on the economy.   The tariffs are dumb, his immigration policy a negative, and the tax changes didn't deliver as promised.  Fortunately the cupboard was full when Trump took office, and luckily there hasn't been a significant crisis.

This year is a little more scary.   There are fewer sane voices in the administration to temper Mr. Trump's impulses.   And Mr. Trump will likely find himself under even more intense scrutiny this year both from the new Congress, and the many investigations into Mr. Trump's activities.

How will he react to this increased pressure?   What if there is a geopolitical or financial crisis?    Will he keep the government shutdown for an extended period?   Will he keep escalating the trade war?

These are all unknowns (although we know he would react poorly).  My forecasts are based on a limited negative impact from Mr. Trump - and I hope that remains the case.   But he is a key downside risk for the economy.

Here are the Ten Economic Questions for 2019 and a few predictions:

Question #1 for 2019: Will Mr. Trump negatively impact the economy in 2019?
Question #2 for 2019: How much will the economy grow in 2019?
Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
Question #4 for 2019: What will the unemployment rate be in December 2019?
Question #5 for 2019: Will the core inflation rate rise in 2019? Will too much inflation be a concern in 2019?
Question #6 for 2019: Will the Fed raise rates in 2019, and if so, by how much?
Question #7 for 2019: How much will wages increase in 2019?
Question #8 for 2019: How much will Residential Investment increase?
Question #9 for 2019: What will happen with house prices in 2019?
Question #10 for 2019: Will housing inventory increase or decrease in 2019?