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What Kind of Year Will 2019 Be? - December 25, 2018

“We know that the economy may not be as kind to our forecasts”

 The above quote is from Jerome Powell’s opening comments following the most recent FOMC meeting. The Fed decided to hike rates, much to the chagrin of many, as we discussed last week. With this in mind, what will the new year bring? We thought it would be useful to look back over the topics we’ve covered this past year, partly to see if any patterns emerge and partly to remind ourselves what a journey it has been.

In Thoughts from the Divide, we’ve written about everything from Italy’s populism and the ensuing knock on effects, to the importance of demographics and some changes that have followed marijuana legalization. However, in looking back, we found that a few topics emerge as recurring themes...

 The Labor Market

 Whether it was discussions of slack, the participation rate, the Phillips curve, or wage inflation, labor markets have been a constant source of interesting data. The trend has been clear, as Powell put in his December post-FOMC press conference, “wages have moved up for workers across a wide range of occupations”, and he expects wages to continue to rise. Sounds good to us, and don’t worry, as Powell assured everyone, though, “We hear a great deal of anecdotal information about labor shortages”, “wage increases do not need to be inflationary”.

 The Housing Market

The second major theme was the housing market. Housing IS the Business Cycle, as we covered in July. But the housing market has many other threads woven through it. Construction workers have seen significant wage increases as their labor market heats up. Yet at the same time, the housing market is feeling the effects of tariffs and higher rates. Affordability had been a constant theme, and while some see reasons to be optimistic, there appear to be clouds brewing on the horizon.

 The Fed

 Finally, it’s no surprise that the Fed has been a constant theme. We’ve looked at interesting historical analysis on the participation rate, housing market, and opioid epidemic. Additionally, FOMC headlines and Jerome Powell have been on the minds of market participants throughout the year. Will things change next year Powell makes every meeting “live” with a press conference? Time will tell.

 Whatever changes the New Year brings, we want to thank you all for reading, sharing and interacting with Thoughts from the Divide. From all of us at MI2 Partners, Merry Christmas, Happy Holidays, and Happy New Year!

P.S. The first newsletter for 2019 will be published on Wednesday, January 2 and look for some exciting changes coming to TFTD!

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