AP NEWS

Economy, markets face some hefty New Year’s challenges

December 29, 2018

The overall direction of the stock market has been down since October, but it had not crashed when reporter John Roper interviewed Houston’s favorite forecaster for today’s Texas Inc.

Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business, offers a rather sunny outlook for Houston for 2019, despite some headwinds that some say could put the U.S. in a recession by the middle of the year.

I like predictions about the economy the same way other people like predictions about sports. I regard them both as interesting guesswork.

In truth, there is no predicting the future. We can only look at current trends and try to imagine what the world will look like if they continue.

I’m in the camp that watched the Standard & Poor’s 500 and other indexes fall by 20 percent or more just in time for Christmas and call it a bear market. Others are simply considering it a really bad correction. By either name, I’d been expecting something like this to happen, as did many others. And it did.

If we are truly in a bear market, it could take much of 2019 to recover. Bear markets don’t go away overnight. There are a lot of reasons why this may be so this time around, including rising interest rates and a trade war with China.

As equity values continue to sag, and as borrowing becomes more expensive, it’s difficult to see why the market might suddenly change directions and kill this bear.

We’ve also got $45 oil - a trend that does not bode well for Houston. The area held up well during the last oil price downturn, so this is not a crisis. But make no mistake, this is truly another drag on the economy.

The positive effects we enjoyed earlier in 2018 from a tax cut have run their course. The Federal Reserve, in addition to raising interest rates, is working to reduce the size of its balance sheet. What that means is that our central bank is pulling money out of the global economy — not pouring it in as it did after the 2008 financial crisis.

On the plus side, we still have nearly full employment, corporate balance sheets are robust, banks are healthy, and consumers are still out spending strongly. So it may not be such a bad year.

If we do hit a recession in 2019, though, keep in mind that it’s long overdue. It’s also good for the economy to retreat now and then to squeeze out the excesses.

Think of it as a year of buying opportunities.

al.lewis@chron.com

AP RADIO
Update hourly