Economic growth has probably peaked, slowdown nearing
The Commerce Department reported last week that the U.S. economy grew at an excellent 4.2 percent in the quarter that ended June 30, but gross domestic product rose only 3.5 percent in the third quarter.
The federal government’s deficit spending, consumer tax cuts and business investing have fueled the economic growth this year. When measured year over year, these factors contributed 2.7 percent to the second quarter’s 4.2 percent growth rate, the bureau reported.
Next year, though, Congress cannot afford to cut any more taxes, which means consumers and businesses will not get another cash injection. Government spending will also remain relatively flat as lawmakers worry about skyrocketing budget deficits.
The lack of new stimuli is why the 60 private economists surveyed by the Wall Street
Journal predict GDP growth of only 2.4 percent in 2019 and 1.8 percent in 2020. If we’re lucky.
The nation’s tiny unemployment rate of 3.7 percent complicates the picture. There are more available jobs than Americans looking for one, forcing employers to offer higher salaries and invest less in equipment and technology.
The mass retirement of Baby Boomers, the nation’s secondlargest generation, exacerbates matters by shrinking the supply of experienced workers. Generation X is too small to replace all of them, and Millennials, who are the largest generation, are still entering the workforce.
Higher spending on labor, without an uptick in worker productivity, hurts profits, discourages business investment and drives up inflation. All of these dynamics slow economic growth.
Geopolitical instability introduces additional anxiety into American boardrooms. President Donald Trump’s tariffs on China, and Beijing’s reluctance to negotiate, are discouraging business investment, particularly among companies that either sell to or make products in China, according to IHS Markit, an economic analysis firm.
The United Kingdom’s messy Brexit negotiations with the European Union have also called into question the future of global trade. If the current talks fail, the U.S. could feel the repercussions of a dramatic European economic slowdown.
Texas’ economy is more diversified than ever, but the energy sector still accounts for 40 percent of revenues.
Oil is a global commodity that closely tracks economic growth. Demand and price go up when the economy grows, and prices drop when it slows. Higher commodity prices can also slow economic growth.
Trump’s tariffs are slowing trade between the two largest economies on earth. If the tariffs increase on Jan. 1, as Trump has threatened, China’s retaliation could take an even bigger chunk out of the global economy.
Low oil prices are bad for Texas’ economy, but if the global economy grows, Texas could get a boost if crude prices remain reasonable.
OPEC works very hard to manage oil supply to ensure the price remains in a neutral zone where producers get paid enough to keep pumping while not charging so much that they strangle the global economy. Texas oil companies are along for the ride.
Trump has ordered the world to stop buying Iranian oil, and the world needs a supplier to make up for the lost barrels.
Many experts question how much more OPEC can pump, while also doubting whether American shale drillers can export as much as they promise.
If neither OPEC nor Texas can deliver, oil prices will jump, and inflation with it.
Fears of slower economic growth are already evident in stock market indexes. Stock traders make investments based on future growth, not past performance, and they sell at the first sign of trouble.
“We've talked about the length of growth in this economy, and the expectation that it could turn from here,” Devina Rankin, CEO of Houstonbased Waste Management said on a conference call with analysts. She said the company was positioned to buy up smaller companies if there is a downturn.
Global stock indexes are down about 10 percent from recent highs, though that’s not a useful gauge. The ratio of a stock’s price to a company’s earnings is a more accurate measure of value, and price-toearnings ratios are down to 2016 levels, a fairly bearish outlook.
No one, not even the White House, is forecasting GDP growth of more than 3.25 percent in the years ahead. We ate all the candy; we enjoyed a burst of energy, and the sugar crash is upon us.