Despite a Few Ripples, the U.S. Economy Is Poised for Growth

If you had to describe what the economic outlook was for 2019, you might be inclined to liken it to the Charles Dickens novel “A Tale of Two Cities.”

In this case, however, you would call it “A Tale of Two Economies.” On one side, you have raw data that show consumer spending is up, unemployment is down and wages are rising steadily.

On the other side, you would have a schizophrenic stock market, rising interest rates, a looming trade war and a partial federal government shutdown that is the longest in history.

Despite these opposing sides, economists remain optimistic that 2019 will be a relatively good year with the gross domestic product rising a little more than 2 percent as the Federal Reserve curbs its quarterly interest-rate hikes and more jobs are created.

More importantly, consumers remain upbeat. “There are some people out there who are a little more anxious because of the stock market, but people feel good about the fact that they are still making more money than they did before,” said Britt Beemer, founder of America’s Research Group, which polls 1,200 consumers a week to take the pulse of their retail-spending attitude. “If people didn’t get a pay increase last year, they are most likely getting one this year. How much money you take home affects how you view the world.”

The retail sector is one area where wages are going up because salaries were relatively low when there were plenty of job applicants, but that has changed. “Retail has had to scramble to find people,” said David Shulman, a senior economist with the UCLA Anderson Forecast. “The only way to find them is to pay them.” He noted that retail wages have risen more than 3 percent in the last year.

“We think the consumer is fine, and online shopping just continues,” he said. “I see that by the number of Amazon boxes around my house.”

But bricks-and-mortar stores are being challenged with stiff online competition that keeps gaining inroads into shoppers’ pocketbooks. During the holiday season, sales were the strongest they have been in the past six years, up 5.1 percent. But online purchases skyrocketed more than 19 percent.

Servicing customers in the omni-channel arena, which has lower margins, is tough for big stores that are scrambling to provide it all. On Jan. 10, Macy’s stock nosedived nearly 19 percent in trading after the country’s largest department-store chain reported that its same-store sales for the holiday season were up a paltry 0.7 percent. Now Macy’s is expecting same-store sales for the year to edge up a mere 2 percent on an owned-plus-licensed basis as it tries to figure out its retail strategy.

Servicing customers paid off for Target Corp., which saw its same-store sales in November and December rise 5.7 percent compared with 3.4 percent the previous year. Growth was strongest in toys, baby and seasonal gift items.

While in-store sales were strong, digital sales mushroomed 29 percent. That was helped by the fact that the mid-tier retailer was offering in-store pickup as well as drive-up pickup, which grew 60 percent over the previous year and accounted for a quarter of the company’s digital sales during those two months.

More good times?

The United States is now in the midst of one of the longest-running economic upturns in history, which has some people worried this can’t last forever. Talks of a recession swirled late last year when the stock market skidded to new lows. But economists believe that rumors of a recession are overblown.

“We have been hearing that people are concerned that the expansion has been going on for a while and maybe we are due for a recession,” said Robert Kleinhenz, an economist with Beacon Economics in Los Angeles. “A lot of people think there is a 10-year cycle to the economy, but there is no reason why an economic expansion should end after 10 years.”

Oil prices are just now climbing out of a 52-week low of $42.53 a barrel on Dec. 24 for West Texas intermediate crude. While climbing back up to more than $50 a barrel, oil prices aren’t expected to skyrocket soon. “This means gas will be cheaper for consumers,” said Shulman of the UCLA Anderson Forecast.

Inflation last year was hovering at about 2.4 percent and should be somewhat lower this year.

Interest rates are also expected to slow their ascent from last year. Economists agree that the Federal Reserve is probably only going to raise benchmark interest rates once this year.

In California, the good times should continue to roll. “California unemployment at 4.1 percent [compared to 3.9 percent nationally] is the lowest on record going back to 1976,” Kleinhenz said.

Even the apparel industry in Los Angeles County gained 100 jobs in November compared to the previous year.

Last year, California’s job-growth rate inched up at a 2 percent annual rate compared with the nation’s 1.6 percent increase. “It is likely we will see another good year for California,” Kleinhenz said. “We should fare relatively well, but job growth will be slightly slower.”