Johnson warns economy may slow

Rising rates, less spending, tight job market a concern

The good times are rolling when it comes to the U.S. economy — but a downturn may be on the horizon, said Hugh Johnson, the Albany investment strategist who on Friday delivered his annual economic forecast to the Capital Region Chamber of Commerce.

While Johnson cautioned that “we’re going to be fine for a while,” he said that rising interest rates, reduced consumer spending and the tight labor market could spell an economic slowdown in the first quarter of 2020.

“You’ve still got time, hold the line,” Johnson said to the audience of local investors and executives. Johnson, a nationally known and oft-quoted economic expert, said he expects economic growth to slow from 2.9 percent this year to 2.7 percent in 2019, and down to 2.3 percent in 2020.

But statewide, Johnson said he expects the New York economy to become more productive as the fast-growing information technology and professional business management industries continue to increase Gross State Product — the state’s total economic output.

However, that additional output could come along with a downtick in employment — a result of increased automation and a workforce shortage.

Job growth is expected to slow in 2019, meaning cities like Saratoga Springs, with a 3.2 percent unemployment rate, need to focus on workforce development in order to avoid economic stagnation, Johnson said.

“You can’t grow employment when there’s nobody out there looking for a job,” Johnson said. Cities “have got to find a way to grow the labor force.”

Johnson estimated the U.S. will add 2.3 million jobs in 2019, down from around 2.6 to 2.7 million in 2018, because of the low unemployment.

“We’re at full employment. Everybody who wants a job has a job,” Johnson said. “There’ll be some upward pressure, because of the tightness of the labor market, on wages. Not a lot of upward pressure on wages, but some.”

Another red flag for the economy is the nation’s growing debt, Johnson said. Public debt as a share of Gross Domestic Product is 79 percent, up from 39 percent a decade ago.

“When you get the debt to GDP level up near 90 percent, you’re going to have trouble,” Johnson said. “This is likely to put lots of pressure on the incoming House of Representatives, and incoming Washington folks to make some changes.”

And with a middle-class tax cut proposed by President Donald Trump, Johnson said the federal government could look to finance that cut — and avoid raising the deficit further — by rolling back corporate tax cut rates from 21 percent up to 25 percent.

But now is the wrong time for that, Johnson said. If the government begins exercising fiscal restraint — raising

taxes and cutting spending — to lower the deficit, “that could lead to real difficulties for the stock market and the ongoing economic cycle.”

“If you have fiscal restraint and monetary restraint, an economy that’s already growing at a slow pace, it could toss you over the wall,” Johnson said. “This is not the time to hit the brakes too hard. You’ve got to be really careful.”

Johnson also predicted that oil prices would be on the rise in 2019. Prices are about $51 per barrel right now, but Johnson said that could climb over $59 per barrel.

On the international trade front, Johnson said he expects the Trump administration to postpone the 15 percent increase in tariffs, from 10 to 25 percent, on $200 billion of Chinese imported goods.

In exchange for the postponement, he said, China could agree to further open access for U.S. companies to their market, as well as to better protect U.S. intellectual property from theft.

And while the economy’s growth appears to be slowing, Johnson urged that the downturn is not here yet, and maintained an overall positive outlook for the economy moving forward.

“Prospects for the stock market aren’t getting quite as rosy as they’ve been over the past five years, but I think we’re fine so long as we don’t have a shift to fiscal restraint,” Johnson said. “So I think we’re fine. Let’s just cross our fingers and hope that’s the case.”