As 2017 closes, at least a couple of economists are feeling confident about 2018.
Beyond that, however, some crystal balls get cloudy.
In his annual talk at the Washington County Economic Summit in Hagerstown, Md., economist Anirban Basu of the Sage Policy Group said momentum from 2017 will carry into the new year.
“I think 2018 will be fine for the U.S. economy,” he said.
That dovetailed with the projection offered a few weeks earlier by Andy Bauer, senior regional economist with the Baltimore branch of the Federal Reserve Bank of Richmond, Va. Speaking during a seminar in Martinsburg, W.Va., Bauer estimated the economy would continue to grow at 2 percent or better during 2018.
In their separate remarks, both economists pointed to similar statistics, citing low inflation and unemployment rates as well as solid rates of consumer spending. But both also pointed to signs that growth isn’t what is used to be.
Bauer, for example, said economic growth in the United States averaged about 3.5 percent per year in the decades leading up to the Great Recession of 2008-09. But during the recovery, he said, the nation is averaging a little more than 2 percent.
That also lines up with other forecasts. For example, in Bloomberg’s recent report on the global economy, economists predicted the U.S. will grow 2.5 percent in 2018.
Home sweet home?
For the Crossroads area, economists see hope in homes.
Bauer said the residential housing market is lagging from the “hangover” of the recession. That has been exacerbated by many millennials’ choice to rent, rather than buy.
Basu, however, looks for that trend to change as millennials start families and seek out the best communities and schools for their children. He also said he suspects more people will be prompted to buy homes as home values and interest rates edge up.
“Home ownership is about to come back in this country with a vengeance,” he predicted.
That could be good news for the Crossroads area, for example, which has ample highway access for commuters and lower home prices than some other communities.
Speaking specifically of Hagerstown, Md., Basu pointed to efforts to build from the educational and cultural assets that already exist downtown, saying it could spur development similar to that seen in other communities, such as Frederick, Md.
“Everyone wants to be Frederick, Md.,” he said, making a tongue-in-cheek joke to a Hagerstown audience that sometimes compares the two cities. “Paris wants to be Frederick, Md.”
‘We don’t invest enough’
Speaking in the Eastern Panhandle of West Virginia, Bauer pointed to housing and commercial growth, particularly along the Interstate 81 corridor in Berkeley County. Important developments by large corporations, such as the new Procter & Gamble plant are “leading to a lot of other good things happening in the region,” he said.
Continuing commerical growth and investment has been seen in Franklin County, Pa., with construction along I-81.
Looking at the broader, national picture, Basu issued a couple of warnings.
There are two sides to the employment rate story, he said.
“There are a lot of jobs being created out there right now,” which, for the most part, is good news. But while the unemployment rate is low, large numbers of people have taken themselves out of the labor force.
And, during past three years, commercial investment has grown for projects such as office buildings. But investment has fallen for items such as sewer and wastewater treatment plants, roads, water-supply facilities, public safety, flood control, churches and other community facilities.
“Not enough of us work,” he said, “and we don’t invest enough in the people that do.”
He suspects offshore money put into commercial real estate could become an investment bubble.
Basu also suspects we could see a slight downturn in the economy heading into 2019 or 2020.
He ticked through a list of concerns during his talk in Washington County, Md.
• The U.S. savings rate, after rising during the past few years, is back down to 3.1 percent of disposable income.
• The global economy, in Basu’s view, “remains weak.”
• Inflationary pressures and, eventually, interest rates are on the rise. “That could begin to squeeze asset prices in 2018, triggering negative wealth effects and sentiment in the process.”
• “There are also longer-term structural considerations, including the national debt and pending insolvencies of Medicare and Social Security — the longer-term outlook may be deteriorating even as the short-run improves.”
He concluded, “Momentum should see us through 2017-18 from an economic perspective, but tighter monetary policy combined with a heavy dose of political intrigue could render 2018 different from an asset price perspective. By this time in 2019-20, the economy could be in a far different place and likely will be.”
He said he wouldn’t rule out an economic downturn, although not nearly as severe or as long as the Great Recession.
Then he acknowledged that predicting can be tricky.
“It’s an … educated guess, but I’m guessing,” he said.