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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-
         ( “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
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