McCain

Bruce McCain, chief investment strategist for Key Private Bank, spoke Friday, Feb. 1 at the annual Economic Forecast Breakfast in Richland County.

SHELBY -- The economy will continue growing in 2019, but maybe not as rapidly as before, according to an expert who spoke at Richland County's 5th annual economic forecast breakfast on Friday morning.

In his presentation at the James W. Kehoe Center in Shelby, Bruce McCain, chief investment strategist for Key Private Bank, explained that the United States' economic growth should slow to a more sustainable level, if it's to continue.  

"Remarkably, for this long into the (economic) cycle, we seem to be in pretty good shape in respect to the economy," McCain said. "If anything it's too strong. At this point, a little bit of weakening would be helpful." 

As of now, he believes there's no indication of a recession for the next 12 to 24 months and hopes a recession can be avoided for an even longer period.

"We need to slow (the economy) a little bit, but if you grow it slow, in the 1.5- to 2-percent range, there's frankly no reason that we need to have a recession anytime soon," McCain said. "There's nothing written in the law that says you have to end (growth) after 10 years, 11 years or any set period of time."

This year, he said, marks "the longest economic cycle on record," with the economy now growing at 2.3 percent and previously growing at 3 percent, but still he believes further growth is attainable. He cited Australia as an example, saying that country hasn't seen a recession for 27 years.

He recognized that "soft landings" have not typically happened, but he's optimistic based on the Federal Reserve's recent actions. 

"(Because) they've been raising rates a quarter percent at a time over an extended period of time, they have a much better chance to see how that affects the economy and potentially stop before it becomes too late and they've pushed the economy into recession," McCain said.

Effects on Businesses

With the economy growing at a slower rate, businesses will be affected, especially in terms of workforce.

"It's going to be a competitive marketplace, where it's difficult to get pricing power and it may be hard to find the people that we need to employ," McCain said. 

For the first time in 40 years, he explained, the United States is approaching a time where businesses are short on labor. Finding enough skilled labor is the number one problem heard from businesses, McCain said, referencing a survey.

He attributed part of this problem to lack of skilled labor and part to a lack in the "sheer volume of workers."  

"If you look at the wage rates, you'll see we've reached the point with unemployment where we've crossed over the full employment level," McCain said. 

Typically at this point, wages should start rising, but that hasn't been the case. McCain estimated a 3.3 percent wage increase could be sustained by the economy, but it could be challenging for employers to implement.

"What we're seeing with most businesses is it's been pretty difficult to pass price increases along, so that's probably part of the reason," McCain said. 

According to his presentation, the labor force has been growing by 1.5 percent per year, but based on the growth of the prime working age group (age 20 to 60), it would only be growing at 0.2 percent.

"That's because we've been pulling people in off the sidelines who have been unemployed or otherwise unengaged. Once we run through that pool, however, of unemployed workers, we're going to drop back to that 0.2 percent," McCain said.

He predicts the economy is going to have to slow, or the country will see higher inflation. He also suggested engaging the 65 and older generation to address the shortage of available workers.

Further, productivity from businesses could also expand the economy, but significant increases in productivity seem unlikely in the immediate future. They are more likely to manifest with mass integration of artificial intelligence and self-driving vehicles.

"It's probably coming, but until the technology is developed and can be implemented, you're not going to get the big boom in productivity that we've seen," McCain said.

Personal Income and Consumption

McCain forecasted a down trend in personal income and consumption both, as the two are closely tied.

"Our wages are not going up as rapidly as they were in the past, due to the impact of globalization and having to compete more with other parts of the world," he said. 

In the 1980's, he explained, wages were increasing by about 13 percent per year. Now, wages increase by about 4.3 percent annually.

"That puts a lid on how much you can consume," he said. 

Capacity to produce products, as a result, has outpaced consumption. 

Housing, he predicts, will be "sluggish" until more affordable housing is available. He also doesn't expect vehicle sales to increase. Still, while vehicle sales have plateaued, they are stronger than the average of the past six years.

Government spending

McCain warned of a "crisis like we've seen" when talking about government spending.

"We'll have massive numbers of people beginning to rely on (social security and medicare), it expands the deficits markedly looking out over the next 20 years," he said.

It will cost more, he predicts, than is possible to bring in via tax revenue.

"So, learning to live with inflation is something we need to learn to live with," McCain said, adding it should be taken into consideration for those making investments and running businesses.

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