2018 Looks Great, but Economist Warns Recession is Coming
John Hielscher | Sarasota Herald-Tribune, Fla. | January 12, 2018 1:00am
Jan. 12--2018 should be another solid year for economic growth in the Manatee-Sarasota region and nationwide, economist Henry "Hank" Fishkind said Thursday.
But a downturn looms, he warned, and the economic expansion now in its record 87th month could turn to a recession by 2020.
Fishkind, for the 19th straight year presenting an economic forecast to the Bradenton Area Economic Development Corp., got a strong show of hands when he asked the nearly 400 in attendance if they were optimistic about the new year.
"Everything is lined up momentum-wise for a very strong 2018," Fishkind said.
But fewer hands went up when asked if business would be better in 2019, and the economist said the new tax cuts and decisions on immigration and trade policy will bear a strong impact on future economic growth.
"Recessions don't happen because expansions die of old age," he said. "They die of actions and bad policy decisions."
The savings in the new tax reform package will go only so far to spur consumer spending, he said. Lower- and middle-income households are getting about $2,000 in tax breaks, so they may spend some of that money. But the wealthier households that got larger breaks have a lower propensity for consumer spending.
"Once you have two cars, you're not to going to buy three," he said.
He also believes the tax stimulus is ill timed. The economy is operating at or near full employment, capacity utilization is high, and the Federal Reserve's strategy is to raise interest rates and reduce the money supply. While tax reform will add 0.5 percent to GDP growth this year and next, it also will cause interest rates to rise higher and faster, and the government will need to finance $1 trillion more debt over 10 years.
"Ultimately, this will slow growth and lead to a recession," Fishkind said.
Immigration remains key to driving the economy, with U.S. population growth less than an annual 1 percent.
"If we don't have immigration, we don't have the population growth to support our labor supply to support our growing economy," the economist said.
The Manatee-Sarasota area is showing strong job growth.
The two-county region added 12,200 jobs over the year, a gain of 4.1 percent. It led the state with a 12 percent spurt in the leisure-hospitality sector, adding 5,200 jobs compared with 2016, the Department of Economic Opportunity reported. The combined jobless rate of 3.4 percent was one of the lowest among Florida metros.
"Employment growth is good, but it could be better, and you're doing a good job of pursuing that," Fishkind said.
The real estate market also remains strong. Single-family home sales rose 1.3 percent in November in the region, while condo sales surged 22 percent. Median home prices increased 3.6 percent to $285,000, while condos jumped 21 percent to $220,500, according to data from Florida Realtors.
"It's reflective of a very strong local economy," he said.
But that could cool off. The Federal Reserve is expected to bump up interest rates four times this year and four times in 2019. He believes mortgage rates will hit 8 percent in 2020, double the 3.99 percent average reported Thursday for a 30-year fixed-rate loan.
"That's not the highest record it's been, but it's going to be high enough to squeeze housing starts and auto sales, and who knows what is going to have come unglued in the financial markets that we don't know about."
While tourist tax collections in Manatee are up nearly 10 percent in the current fiscal year, the stronger dollar has done some damage. The Canadian loonie is off 15 percent to the dollar, and Canadian visits to Florida have dropped by 20 percent.
"It does have some effect on us, even here in Manatee County," Fishkind said.
Fishkind has more than 30 years of experience in economic analysis and forecasting. He is a principal of Fishkind & Associates Inc., an economic and financial consulting firm in Orlando with experience in economic and fiscal impact analysis, policy studies, forecasting and finance in Florida and the U.S.