January '19

Issue link:

Contents of this Issue


Page 17 of 71

14 THE SHOP JANUARY 2019 along as it is and unemployment lower, retailers may need to raise wages to attract enough people," says Hoyt. That can crimp profits. A 'Hard Brexit' If the U.K. fails to land a favorable deal with the European Union, an unmoder- ated departure could cause problems for the world economy. "We expect a Brexit deal to be reached at the last minute," says Hoyt. "If it is not, it would be a negative for the global economy and U.S. consumers, as supply chains and movement of workers would be disrupted." Health care costs "On the cost side, health care is still a con- cern," says Palisin. "Some 70 percent of our members report an increase in medical costs over the past year. Again, there is a lot of unpredictability in that sector. Will the Affordable Care Act continue? Be replaced? And will that result in higher costs? Employers don't know where all this is going." BUSINESS CYCLE AGES Looking a bit farther down the track, there are signs that the fast-moving economic carriage may be nearing the top of the roller coaster. "The nation is experiencing robust economic growth, tightening labor and product markets, intensifying wage and price pressures, monetary tightening and higher interest rates," says Koropeckyj. "These characterize a business cycle nearing its end, just prior to a recession." When might that event occur? "We prefer not to forecast recessions, which are often caused by shocks that cannot be predicted," says Koropeckyj. "However, our forecast for 2020 includes a set of conditions that are consistent with a recession. While we do not expect the textbook definition—two quarters of GDP decline—to occur, real GDP growth is expected to slow to a crawl." Other relevant predictions include a too-rapid increase in unemployment, the cessation of job growth, flat industrial production and a deceleration of personal income growth. To help draw a bead on the recession's timing—or maybe just to bring into sharper focus the changing operating environment—Hoyt suggests watching a number of important indicators in the early months of 2019. "I would keep a close eye on the polit- ical environment," says Hoyt. "What is going on with tariffs, and is there a risk of a trade war? Beyond that, I would watch for indications about the anticipated pace of interest rate hikes from the Federal Reserve. At some point those will start to bite and put a damper on growth. That will prob- ably be an issue for later in 2019, but the faster rates go up, the sooner the economy might be affected." For retailers, the employment picture may be the most important factor of all. "Watch for anything related to the labor market," says Hoyt. "How much are wages accelerating, and is the increase fast enough to offset any deceleration of employment growth?" For businesses of all kinds, the prudent course seems to involve capitalizing on good times while setting up Plan B for the inevitable correction. "Businesses are optimistic about 2019, but we are all aware that recessions are cyclical," says Manzella. "And there is no doubt that the next recession is on its way. The only question is when." New York City-based journalist PHILLIP M. PERRY publishes widely in the fields of business management and law. Corporate profits are expected to rise by 3.7 percent in 2019. Riding the Economic Boom

Articles in this issue

view archives of THE SHOP - January '19