by Calculated Risk on 1/02/2019 05:37:00 PM

Earlier I posted some questions for this year: Ten Economic Questions for 2019. I'm adding some thoughts, and maybe some predictions for each question.

2) Economic growth:  Economic growth was around 3% in 2018.   Most analysts are expecting growth to slow in 2019 as the impact of the tax cuts wears off.  How much will the economy grow in 2019?

First, since I'm frequently asked, I don't see a recession starting in 2019.

Here is a table of the annual change in real GDP since 2005.  Economic activity has mostly been in the 2% range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%., although demographics are improving (more prime age workers).

Note: This table includes both annual change and q4 over the previous q4 (two slightly different measures).   For 2018, I used a 2.6% annual growth rate in Q4 2018 (this gives 3.1% Q4 over Q4 or 2.9% real annual growth).

Real GDP Growth
Year	Annual GDP	Q4 / Q4
2005	3.5%	3.1%
2006	2.9%	2.6%
2007	1.9%	2.0%
2008	-0.1%	-2.8%
2009	-2.5%	0.2%
2010	2.6%	2.6%
2011	1.6%	1.6%
2012	2.2%	1.5%
2013	1.8%	2.6%
2014	2.5%	2.7%
2015	2.9%	2.0%
2016	1.6%	1.9%
2017	2.2%	2.5%
20181	2.9%	3.1%
1 2018 estimate based on 2.6% Q4 annualized real growth rate

The FOMC is projecting real GDP growth of 2.3% to 2.5% in 2019 (Q4 over Q4).

Note: The Trump administration projected 3.5% annual real growth over Mr. Trump's term: "Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate." (now removed from Trump website). That hasn't happened.

As expected, there was a pickup in growth in 2018 due to a combination of factors.

The new tax policy boosted the economy a little in 2018, and there was some economic boost from oil sector investment in 2018 since oil prices increased in 2017 and early 2018.  And demographics improved (it appears the prime working age population is growing again, compared to declining a few years ago, although the data is unclear).

Looking to 2019, fiscal policy will still be a positive for growth - although the boost will fade over the course of the year, and become a drag in 2020.   And oil prices declined sharply in late 2018, and this will be a drag on economic growth in 2019.   Auto sales are mostly moving sideways, and housing has been under pressure due to higher mortgage rates and the new tax plan.

These factors suggest growth will slow in 2019, probably to the low 2s -and maybe even a 1 handle.

Here are the Ten Economic Questions for 2019 and a few predictions:

• Question #1 for 2019: Will Mr. Trump negatively impact the economy in 2019?
• Question #2 for 2019: How much will the economy grow in 2019?
• Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
• Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
• Question #4 for 2019: What will the unemployment rate be in December 2019?
• Question #5 for 2019: Will the core inflation rate rise in 2019? Will too much inflation be a concern in 2019?
• Question #6 for 2019: Will the Fed raise rates in 2019, and if so, by how much?
• Question #7 for 2019: How much will wages increase in 2019?
• Question #8 for 2019: How much will Residential Investment increase?
• Question #9 for 2019: What will happen with house prices in 2019?
• Question #10 for 2019: Will housing inventory increase or decrease in 2019?