Here is a review of the Ten Economic Questions for 2018.
Below are my ten questions for 2019. I'll follow up with some thoughts on each of these questions.
The purpose of these questions is to provide a framework to think about how the U.S. economy will perform in 2019, and - when there are surprises - to adjust my thinking.
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?
2) Economic growth: Economic growth was around 3% in 2018. Most analysts are expecting growth to slow in 2019 as the impact of the tax cuts wears off. How much will the economy grow in 2019?
3) Employment: Through November 2018, the economy has added 2,268,000 thousand jobs, or 206 thousand per month. This was the best year since 2015. Job creation was up from 182 thousand per month in 2017, and up from 195 thousand per month in 2016. Will job creation in 2019 be as strong as in 2018? Will job creation pick up further? Or will job creation slow in 2019?
4) Unemployment Rate: The unemployment rate was at 3.7% in November, down 0.4 percentage points year-over-year. Currently the FOMC is forecasting the unemployment rate will be in the 3.5% to 3.7% range in Q4 2019. What will the unemployment rate be in December 2019?
5) Inflation: The inflation rate has increased and some key measures are now close to the the Fed's 2% target. Will core inflation rate rise in 2019? Will too much inflation be a concern in 2019?
6) Monetary Policy: The Fed raised rates four times in 2018. Currently the Fed is forecasting two more rate hikes in 2019. Some analysts are forecasting three rate hikes. Will the Fed raise rates in 2019, and if so, by how much?
7) Real Wage Growth: Wage growth picked up in 2018 (up 3.1% year-over-year as of November). How much will wages increase in 2019?
8) Residential Investment: Residential investment (RI) was sluggish in 2018, and new home sales were mostly unchanged from 2017. Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales. How much will RI increase in 2019? How about housing starts and new home sales in 2019?
9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up around 5% in 2018. What will happen with house prices in 2019?
10) Housing Inventory: Housing inventory increased in 2018. Will inventory increase further in 2019?
There are other important questions, but these are the ones I'm focused on right now. I'll write on each of these questions over the next couple of weeks.