US Economic Outlook 2019

Synopsis
• The economic growth that started in June 2009 , is the second
longest U.S. economic upswing on record.

• The U.S. economy, in 2018, looks set to go down as one of the

best years of this expansion.

• The Real GDP growth in 2018 has been boosted by economic

policies.

• The trade-weighted value of the U.S. dollar against other major

currencies has risen about 5%.

• It is expected that the U.S. economy will expand 2.7% in

2019 compared to nearly 3% in 2018
• The Unemployment has reached to its lowest rate in nearly
50 years, which has led to some acceleration in wages.

• Modest rates of wage inflation are putting some upward

pressure on rates of consumer price inflation.

• Some of the factors that have contributed to strong economic

growth this year are beginning to fade.

• The income-lifting effects of the tax cuts will disappear in

2019, which should lead to some deceleration in real personal
consumption expenditures.

• Federal Open Market Committee (FOMC) will increase the

fund rate by 25 basis points to 2.25-2.50 percent in December.
• Growth in real government expenditures is also set to slow.

• https://www.cnbc.com/2018/11/20/as-us-recession-chances-
increase-the-fed-may-deliver-fewer-rate-hikes-reuters-
poll.html
 It Is the Best of Times, It Is the Worst
of Times
• Could the good times last even longer than we anticipate?

• YES
 Global Economy At a Glance

• The global GDP has risen 3.7% in 2018 compared to 3.13 in

2017.
• The consumer price inflation down from a peak of 17.3
percent in 1974 to about 3.5 percent in 2018.
• Oil prices were volatile in the second half of 2018, but it
sharply falls toward the end of the year.(mainly due to supply
factors)
• But it’s expected that the global GDP growth at 3.6% in 2019
and 3.4% in 2020.
• Slower growth in developed country economy.
 Wells Fargo International Forecast

(Year-over-Year Percent Change)

GDP
2018 2019 2020
Global (PPP Weights) 3.70% 3.60% 3.40%

Advanced Economies 2.40% 2.30% 2.00%

United States 2.90% 2.70% 2.20%

Eurozone 1.90% 1.70% 1.60%

United Kingdom 1.30% 1.50% 1.50%

Japan 0.90% 0.90% 0.50%

Canada 2.10% 2.00% 1.70%

Developing Economies 1 4.60% 4.50% 4.40%

China 6.60% 6.20% 6.00%
India 7.40% 7.30% 7.10%

Mexico 2.10% 2.30% 1.90%

Forecast as of: December 13, 2018

Aggregated Using PPP Weights
 Wells Fargo International Forecast
(Year-over-Year Percent Change)
CPI
2018 2019 2020
Global (PPP Weights) 3.50% 3.60% 3.70%

Advanced Economies 2.20% 2.10% 2.30%

United States 2.40% 2.30% 2.60%
Eurozone 1.80% 1.70% 1.80%
United Kingdom 2.40% 2.20% 2.00%
Japan 1.00% 1.20% 1.90%
Canada 2.30% 2.10% 2.00%

Developing Economies 1 4.50% 4.70% 4.70%

China 2.20% 2.40% 2.30%
India 4.50% 4.60% 4.80%
Mexico 4.90% 4.00% 3.70%

Forecast as of: December 13, 2018

Aggregated Using PPP Weights
Wells Fargo International Interest rates
Forecast

Source: International Monetary Fund and Wells Fargo Securities

 US Monetary and Fiscal Policy
• Fiscal stimulus in the past year gave the economy a late
cycle second wind.
• Fiscal stimulus, in the form of tax cuts and higher
government spending, has helped the U.S. economy
grow at a faster pace.( than many other developed
economies and has achieved its intended positive
effects on the U.S. economy.)
• It has also resulted in lower unemployment, increased
wage growth and higher inflation.( which has provided
the Federal Reserve with additional scope to continue
its path of tighter monetary policy)
Consumer Spending & the Job Market
• Real disposable income is expected to remain strong in 2019.

• Americans’ purchases make up nearly 70 percent of economic

activity.

• Household wealth stands at a record high as financial

assets have climbed.

• The higher rate of saving, provides households the financial

ability to maintain spending at around a 2.5%-3.0% pace in
2019
• Moreover, credit has played a minimal role in consumer
spending in this cycle.

• Debt service remains exceptionally low, giving scope for

households to direct a high share of income to new purchases
rather than previous ones.
Source: Federal Reserve Board,U.S Department of labor
 Job Market
• It is expected the unemployment, will fall to 3.5% by the
fourth quarter of 2019.(rate,which is already at a 50 year low)
• Job openings have increased to record highs with more than
one million more job vacancies than unemployed
workers.(giving workers increasing leverage over employers.)
• Demand for workers has been particularly strong in blue-
collar and low-wage industries.
• Hiring in transportation, manufacturing, construction and
mining has grown twice as fast as other private sector
employment.
Source: Federal Reserve Board,U.S Department of labor
 Will Us dollar will ever depreciate?

• In 2018 the U.S. dollar has appreciated by around 5%.

• The Federal bank raising the interest rates at a faster pace

than central banks around the world, leading to a stronger U.S
dollar.

• Tax cuts, spending increases, and deregulation has helped the

U.S. economy grow at a faster pace.

• The value of the U.S. dollar rose relative to the Euro and the
British Pound.(basically because of what was happening in
that part of the world.)
• It appears as if this scene will continue into 2019, as England
faces its Brexit issues, and the European Union deals with
Germany, France, and Italy all facing government problems.

• If the economic situation in the U.S. stays relatively calm, the

value of the US dollar should move a little higher in 2019 than
where it currently is.

• If foreign central banks also begin the process of tightening

monetary policy, the U.S. dollar is likely to move on a
downward trend against many of the major G10 currencies.
 Downside Risk
• Trade war between the United States and China.

• Higher interest rate.

• Raising labor cost also present downside risks to

corporate profits and economic growth.

• Inflation could raise.

• Asset price appreciation in recent years

 Conclusion
The U.S. economy enters 2019 after a year of strong growth
Growth prospects in other economies around the world have
moderated somewhat in recent months, and overall financial
conditions have tightened materially

• U.S. economy at/near full employment. Wage growth is lower than

desired largely because of slow productivity growth.
• The outlook is for growth 2%. This assumes unfavorable demography
continues and productivity bounces back somewhat.
• Inequality and labor force participation compound low productivity
growth, leading to slow income growth.
• President Trump’s policy agenda could hurt growth further—and
promote greater inequality of incomes
• https://www.focus-economics.com/countries/united-states