And away we go. Welcome to 2018 everybody. Get as much done as you can because Thanksgiving will be here again before you know it.
I’m asked all the time to predict the economic future. My clients ask me because they want to know what mortgage interest rates are going to do. Friends ask me because I write these articles. My answers to both are the same – I can’t say. If I could, I probably wouldn’t be writing this column from my private villa in Tuscany.
Our economy is way more fun to be that predictable. We are now securely entrenched in a global economy. And if you follow the news, you know that unexpected surprises can pop up at any time.
In January 2015, everyone thought we were finally free from the chains of the recession and that the year would be gangbusters for everyone. It wasn’t long before we were off the chain when we heard of a group called ISIS taking over parts of the Middle East. Then Israel got into a spat with Palestine. Then OPEC opted not to cut back on oil production, driving the price of gas way down. In January of that year, no one predicted any of those things would happen, and all of them had a negative effect on our economy.
In 2016, we were supposed to be past all of that and again were looking to run free into a wildly successful new economy. Then we heard news that China’s growth rate had slowed – still growing at an astonishing rate of 6 percent or something, but it was slow for China. Combine that with the fact that Europe couldn’t seem to show any signs of growth at all, and a looming presidential election here, and investors were kept cautious.
Last year really seemed to at first be about everyone getting used to our new president. The stock market jumped at first as investors scrambled to fill their portfolios with stocks from companies they thought would grow under a Trump presidency. Then the health care bill failed to pass, and everyone put the breaks on. Since then we’ve kind of settled into a normal environment with investors and businesses looking back to the global economy right up until we got the Holiday tax law.
The law was just passed, and our partisan friends have all taken to the trenches. I’ve heard my Republican friends argue that because AT&T gave $1,000 bonuses to its employees, that means the law is successful. My Democrat ones then make the argument all about AT&T. It’s silly. The success or failure of this thing will play out over time. And it will be dependent on many more things than just the new law. If the economy tanks again, then Democrats will blame the tax law. If the economy succeeds, Republicans will credit the tax law.
The corporate rate cut from 35 percent to 21 percent is no joke. It will certainly make companies headquartered outside of our country at least think about moving here. That will be interesting to watch throughout this year and next.
The housing industry will also be fun to watch this year. We are stuck in a historic low inventory market for houses priced $400,000 and below. But we have a glut in the $500,000 and above markets. If we could just convince our current owners of homes in the low-inventory market to sell and buy homes in the high-inventory market, things could get pumping. One theory I was told was that we need a 4 percent increase in wages for that to happen. Wage growth has been stuck in under 2 percent for the last several years, so it will be fun to see if this is finally the year.
Then there is Amazon’s HQ2. The company should decide this year where it will build its second headquarters, and Atlanta is a front-runner. They are talking about 50,000 high-paying jobs with this – it’s serious business.
Globally we’ll see how our relationship with Russia and China progress, or regress. We’ll kind of watch Brexit mature. We’ll look for Europe to keep growing, and we’ll always have any eye on the soap opera of North Korea. Then there are the surprises no one is looking for. If everything moves favorably, expect to see mortgage rates start to jump and the stock market to continue going up.
Let’s keep our eyes open and do good work. Welcome to 2018!