Page 30 - Wire Rope News & Sling Technology - December 2018

continued from page 28 for new and existing home sales and prices to unfavorable levels.”
You’ll get no argument about the im- multifamily housing, through the first An equally troubling issue is the ef-
portance of steady work from consum- half of 2018. “The construction industry fect tariffs have on confidence, says
ers. Indeed, the flurry of paychecks has been operating at full capacity and Manzella. “When companies are faced
seems to be a more important consider- is still struggling to reduce its backlog of with an uncertain future they typically
ation for people than any negative eco- projects,” says Koropeckyj. The coming hold onto their cash, invest less and
nomic news. “Consumers do not seem to 12 months should experience a rebound spend less, and that puts downward
be worried about the effects of a possible as new multifamily building ebbs, re- pressure on economic growth.”
trade war, or gridlock in Washington, or leasing workers for the less labor-inten- Koropeckyj agrees. “Escalating trade
the rise in gasoline prices that has tak- sive single-family category. tensions between the U.S. and China
en place over the past year,” says Hoyt. A healthy retailing sector is an impor- could dampen investment more than
tant factor in a growing economy, and expected,” she says. “Company profits
Housing rebounds here again the outlook is good. “The may be squeezed by the higher costs of
Yet another powerful driver of busi- coming 12 months should be a good year imports. Not only could affected compa-
ness and consumer sentiment, the for retailers,” says Hoyt. Core retail nies be hurt more than expected, but
housing market, should deliver good sales are expected to grow 4.7 percent an erosion in business confidence due
news in 2019. Moody’s believes housing in 2019, a bit slower than the 5.0 per- to heightened uncertainty would weigh
starts will rise by 19.4 percent in 2019, cent growth expected when 2018 num- on spending decisions.”
a substantial increase over the 7.0 per- bers are finally tallied, but better than A related issue involves Chinese
cent expected to be clocked when 2018 the 4.1 percent increase clocked in 2017. tariffs placed on US imports, boost-
are finally tallied. Median home prices (Core retail sales exclude the volatile ing costs to Chinese consumers and
should rise by 2.7 percent, slower than auto and gasoline segments.) industries, says Manzella. “Chinese
the 4.8 percent of 2018. importers are reacting by looking for
The challenge for home builders is Clouds loom alternative sources from other coun-
finding enough workers. “Residential Troubles, as always, loom on the ho- tries,” he says. “A major fear is that
construction as a whole remains be- rizon. The major near-term concern for the Chinese may just stick with those
deviled by a shortage of capacity,” says businesses is the rise of protectionist alternative sources even after the
Koropeckyj. “The unemployment rate trade policies. “The growing uncertain- trade war is minimized.”
for experienced construction work- ty caused by the trade war is throwing Retailers largely share the concerns
ers is at a record low of less than five a monkey wrench into a finely tuned of general businesses. “For retailers,
percent, suggesting that construction system and creating volatility,” says tariffs are the monkey wrench that ev-
labor for the U.S. as a whole is criti- Manzella. A common cost-cutting mea- eryone is trying to figure out how to deal
cally short.” Shortages in workers with sure—sourcing products from countries with,” says Bob Phibbs, a retail consul-
certain skills, such as electricians and not subject to import tariffs—is no pan- tant based in Coxsackie, NY (retaildoc.
steel-erection specialists, are particu- acea. “Unless such companies can buy com). “They will affect margins and ul-
larly acute. in large quantities, they often find that timately consumers will pay for them.”
Indeed, the labor shortage contributed price points are higher,” says Manzella. Here are some other potential prob-
to a leveling out of construction starts “As a result, they end up raising their continued on page 32
Watch These Trends Early in 2019

How will 2019 turn out for business- Koropeckyj, Managing Director of In- spending and tax cuts begins to fade.”
es? Will commercial activity begin to dustry Economics at Moody’s Analytics, Finally, keep an eye out for excessive
slow in the months ahead? When will “Despite nearly a decade-long streak of business risk-taking that can backfire
the next recession begin? job gains, wage growth has been slower on the larger economy. “Businesses
To help answer these questions, that would be expected given the tight- eventually make investments that do
economists suggest watching a num- ness of the labor market. Over the past not pay off, developers overbuild, and
ber of important indicators in the early few quarters wage growth has finally creditors extend too much credit,” says
months of 2019. reached near three percent and with the Koropeckyj. “Most notable today is
“I would keep a close eye on the po- economy close to or at full employment, heightened lending to already-highly
litical environment,” says Scott Hoyt, wage gains could begin rising faster than indebted nonfinancial businesses. This
Senior Director of Consumer Eco- expected. This could translate into high- so-called leveraged lending has taken
nomics for Moody’s Analytics, a re- er than expected inflation if employer off recently, creating concern that these
search firm based in West Chester, PA pass through higher wages.” Similarly, companies will have difficulty navigat-
(economy.com). “What is going on with says Koropeckyj, price growth could ing the next recession and that result-
tariffs, and is there a risk of a trade be faster than expected if trade actions ing bankruptcies and losses will stress
war? Beyond that, I would watch for cause companies to pass on their higher the economy and financial system.
indications about the anticipated pace costs in the form of higher prices. “More broadly, by requiring banks to
of interest rate hikes from the Federal “Given the tight labor market, em- hold more capital and be more liquid,
Reserve. At some point those will start ployment growth is another important risk-taking is shifting to the less regu-
to bite and put a damper on growth. indicator,” says Koropeckyj. “The econ- lated and more opaque part of the finan-
That will probably be an issue for later omy has been adding jobs at a remark- cial system known as the shadow sys-
in 2019, but the faster rates go up the ably steady pace around 200,000 per tem, an array of nonbank institutions,
sooner the economy might be affected.” month since 2012. The labor market including asset managers, derivative
Wage growth will also be an important may run out of steam in 2019, especially exchanges, payment processors, insur-
leading indicator, according to Sophia if the stimulus from higher government ance companies and pension funds.”

30 Wire Rope News & Sling Technology December 2018