Here are some of the issues in business and the economy to watch in 2019.
Whether Santa left you a new Tesla or a lump of coal, we’re not quite out of the holidays. It’s time for my annual markers — not predictions — for the new year. Pop the bubbly.
First, how did last year’s signposts for the economy do? For 2018, my outlook column was topped by a caution about bubbles in asset prices. Sure enough, especially in the fourth quarter, stocks, bonds and housing prices shifted into reverse, in some cases unsettlingly so.
I warned about the anti-Big Tech mood in the other Washington and among many Americans. That happened, too, especially new revelations about Facebook — less so for Amazon and Microsoft.
Amazon, you say? The “full equal” second headquarters was to be announced in 2018. I can take credit for picking New York City and the D.C. area — but I also listed Boston, Dallas and Denver as potential sites. Nobody anticipated that Amazon would split the deal in half, which makes it less likely to be a full equal to Seattle anytime soon.
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Last year’s markers included trade conflicts, too. I worried too much about North Korea (provided this column reaches you and we’re not a radioactive ashtray by the time it publishes).
On to 2019.
The markets: The stock market isn’t the real economy. The stock market isn’t the real economy. The stock market isn’t the real economy. Until it is.
The market turbulence we’ve seen in recent weeks has been prompted by some real-world anxieties: President Donald Trump’s tariffs and abandonment of the American-led world order; Trump’s threats to fire Federal Reserve Chairman Jay Powell; the sudden ouster of the sober and trusted Defense Secretary Jim Mattis; an inexperienced D.C. economic team; the shocking court decision that ruled Obamacare unconstitutional, and the government shutdown.
Maybe Wall Street will steady itself. If it doesn’t, remember that the toffs won’t be the only ones to suffer (they’ll just be a little less rich).
Many baby boomers don’t have another 10 years to rebuild their portfolios before retirement if they’re savaged as in 2008. And people with no stocks, pensions or 401(k)s will be the first affected by layoffs and hiring freezes that result from falling share prices.
Boeing’s 797: The company is expected to announce plans for the New Midmarket Airplane this year. The airliner would fit in between today’s narrowbody 737s and widebody 787s.
As a huge employer in Washington — 65,829 as of this past January — and the anchor of our aerospace cluster, Boeing’s moves on this next project will be of prime importance. Will Boeing pit states against each other for tax breaks and other incentives? Or, with $9 billion in breaks from Washington already, will it settle the new plane in Everett (maybe on newly secured land)?
Sound business practices of another era would argue for the latter choice. In Washington state, Boeing enjoys one of the planet’s foremost centers of aerospace expertise, innovation and physical plant (the other being Airbus in Toulouse, France).
The “shareholder value” model of recent decades would make it enticing for top executives to arrange a cage fight among localities. The goal is always to keep redistributing income upward to shareholders — and that includes corporate welfare in the form of state and local incentives.
Real estate: For a variety of reasons, including rising mortgage rates, housing sales have cooled in Seattle. The nation-leading price increases were unsustainable. But barring a calamity, we’re returning to the normal trend for a pricey, tech-heavy West Coast metro, not a severe housing collapse.
If you’re reading this from afar and lack the high skills that are in demand here, don’t move to Seattle. A continental nation beckons, where you can live more affordably, move up, then attain your Emerald City Dream someday.
The more interesting real-estate action in 2019 will be on the commercial side. After years of being the leader in skyline cranes, next year may see a cooling. Maybe even a dramatic one. This late in an expansion, many of those permitting signs for towers may not give way to actual construction — at least in this cycle. Costs are rising because of tariffs and interest rates. Lenders and developers are nervous (see below).
Metro Seattle will continue to outperform the nation with a strong, diverse economy. Amazon’s appetite for space will likely continue, as will the interest of its Bay Area peers who continue to see a cheaper-but-cool city here. But I’d be surprised if the pace of recent years continues, and losing that sugar high of construction tax revenues will be among the consequences.
Trade. Through October, the latest month available, Washington’s merchandise exports were actually up ($64 billion, according to WiserTrade) compared with the same period in 2017. The same can’t be said for our No. 1 export destination. State exports to China were off nearly $607 million, almost 5 percent.
One thing we can say for President Trump is that he keeps his campaign promises, even if his understanding of the issues is poor and his remedies are destructive. The tit-for-tat tariffs against China are one example (Beijing is often a bad trade actor, but tariffs put the gun to our head, hurting consumers, farmers and most industries).
As Trump faces real opposition from a Democratic-led House and the Mueller investigation likely concludes, expect him to act (out) in the areas where presidents have the most latitude: Foreign policy and trade. Trump might conclude a largely cosmetic deal with Xi Jinping, as he did with NAFTA, and declare victory. Or he might launch a devastating trade war, which could lead to more danger in the competition between the United States and China.
Washington is the most trade-vulnerable state. Watch this one.
Slowdown and recession?: Keynes’ market-driving “animal spirits” notwithstanding, many in the zoo are growing anxious. Many economists and others are forecasting a slower economy in 2019. Given its strength after more than nine years of growth, the economy might merely moderate its pace. This might make it to become the longest expansion in history.
But continued bubbles, market turmoil, trade tensions, political troubles and the badly timed stimulus from tax cuts make a recession possible. Maybe not next year, but in 2020.
Writing in September for Project Syndicate, economists Nouriel Roubini and Brunello Rosa laid out a butcher’s bill of triggers, including those I listed.
“Unlike in 2008, when governments had the policy tools needed to prevent a free fall, the policymakers who must confront the next downturn will have their hands tied while overall debt levels are higher (largely from tax cuts) than during the previous crisis,” they wrote. “When it comes, the next crisis and recession could be even more severe and prolonged than the last.”
I don’t know. It’s also possible we might see a mild recession, as was the case during the “Great Moderation” of the late 1980s and 1990s. Recessions tend to arrive later in Seattle, or so they say. “They” say a lot of things, some even true.
May you and your family have a happy New Year, and may the best come to pass.