The U.S. economy is showing signs of weakening, with momentum slowing, fiscal stimulus decreasing and interest rates rising, according to a fourth quarter market review from Madison-based First Business Financial Services Inc.
Among the concerns for 2019 are the U.S.-China relationship, particularly when it comes to tariffs; the partial government shutdown; increasing market volatility; and falling consumer confidence.
In addition, manufacturers’ confidence is at its lowest point since October 2016 and manufacturing growth has been slowing, with the national reading from the Institute for Supply Management at 54.1 in December.
“On the global front, after starting 2018 in a highly synchronized growth pattern, momentum declined in recent months,” the report says. “Broadly speaking, rising U.S. interest rates, a strong dollar and trade concerns put a damper on growth.”
Asset prices have been increasing quickly, which could point to asset bubbles for investments such as Bitcoin, the report says. And while it increased the federal funds rate four times in 2018, the Federal Reserve pulled back on its plans for 2019, planning for just two increases.
In the near term, though, First Business expects the economy will continue expanding. Consumers upped their discretionary spending and real consumption in the fourth quarter, spending more than $1 trillion during the holiday season. Inflation remains in check, at 2.2 percent year-over-year as of November. And employers added 312,000 jobs in December and increased average hourly earnings by 3.2 percent in 2018, which were positive signs.
The dollar continues to be strong, which is an indication of a strong U.S. economy and tight monetary policy, but First Business Bank doesn’t expect that to last long.
“The economic expansion will likely continue into 2019 at a slow and steady pace,” the report says. “At almost 10 years old, this is the second-longest expansion since 1900. Although growth accelerated meaningfully in 2018 on the wings of fiscal stimulus and an improving trade deficit, moving forward growth will moderate as weak productivity, labor force dynamics, waning trade numbers, fading trade stimulus, and higher interests rates slow it to 2 percent or less in 2019 and beyond.”
