Steve Slifer forecasts a sunny near future
Lauded economist and Numbernomics creator Steve Slifer has a positive forecast for the immediate future of the economy.
“There’s no doubt in my mind that we’re going to see the stock market hit new highs as we go throughout 2019,” he said at his annual Economic Outlook Conference, held on Dec. 6 at the Daniel Island Club. “It doesn’t feel much like that right now, but I think it’s in the cards.”
At the well-attended gathering, he explained his confidence in his viewpoint to a crowd with an on-the-nose talk called “Ignore Your Fears… the End is (Still) Not in Sight,” arguing that pessimism in the near future of the economy is unwarranted.
He began by breaking down the nation’s gross domestic product (GDP) into several broad categories, noting that consumption takes up two-thirds.
Slifer said that this works in tandem with consumer confidence, which is at its highest in 18 years.
“We’re kind of unfazed by what’s been happening in the stock market, and you say ‘why is that?’ And I think a lot of it is jobs,” he stated. “We’re cranking out almost 200,000 jobs a month. That’s important because that creates the income that allows all of us to keep spending.”
The economist added that, although mortgage rates have risen in the past year, they are still below the average of the last 25 years.
“Over the last 20 or 30 years, this averages to about six and a quarter. I’m having a hard time believing a five percent mortgage rate is going to do any serious damage to people,” Slifer said.
He added that he’s also not concerned about consumer debt because, although it’s high, income has matched it in a comfortable ratio.
“When you look at our debt in relation to income, it’s really low,” he said. “If we were having problems with our debt, I would have thought we’d see some increase in delinquency rates. We saw that right prior to the recession.”
In the last six months, the stock market has begun a downward trend, which Slifer believes is just “stock market noise,” because of the market’s natural tendency to shift up and down.
“I fully believe that as we go forward, we’re going to set new highs in the stock market, as we move into 2019,” he predicted.
Slifer also believes that the housing market is nothing to be concerned about, either. While home sales have dropped recently, the economist made the argument that supply has fallen, not demand. He provided figures that show regular inventory dropping by over 2,000 houses in the last 12 years, meaning that supply is down because demand is far exceeding it. In addition, Slifer showed that housing is, in his view, still affordable thanks to an increased cash flow to citizens, even though mortgage rates are increasing.
“Our income keeps going up, so while these other things—home prices and mortgage rates are going up, our income is going up, too,” he said.
In the second section of Slifer’s presentation, he discussed the seven percent increase in investment spending, which began after the 2016 presidential election.
“The reason for all this is that business leaders are very optimistic about the future,” he explained.
This concurs with the announcement in September that the Small Business Optimism Index is at its highest in 45 years.
“We’ve got big businesses, little businesses, we’ve got manufacturing firms, non-manufacturing firms,” he said. “The business community seems to be pretty enthusiastic about where the economy is likely to go.”
One of the more surprising claims in the economic outlook was that trade only takes 10 percent of the national GDP.
“I’m an economist. I really believe in free trade. I learned that in economy 101,” he stated. “Everybody wins, but those textbooks basically assume that everybody played by the same rules, and we don’t have that.”
He tied this back to the recent trade wars enacted by President Donald Trump, showing that the U.S. primarily has a trade deficit with China, as opposed to nations involved with NAFTA.
While Slifer suggested that a trade war with nations other than China are unwise, he said that the U.S. will mostly push through them neatly because of the low amount that trade accounts for in the GDP.
“If we’re going to have a trade war, which countries are going to fair best in that situation? Answer: the U.S,” he said. “Why? Probably because trade to us is 10 percent of our equation. Everywhere else, it’s about half of your economy.”
According to Slifer, China’s GDP growth has been cut down to 6.5 percent, the lowest it’s been since 1990. He also stated that the cost of trade wars and tariffs will cause “emerging economies” to be crushed.
“We’re not just looking for a trade deal with China. We’re basically asking them to completely alter the way that they do business,” he said. “That’s somewhat more difficult. Having said that, their economy is really taking it on the chin here. My guess would be that by spring sometime, we’re going to have a deal with China. I think it’s in the interest of both sides.”
When gazing at the economic speed limit, a growth predictor based on labor force and productivity, for 2020, most prognoses point to a speed limit of 1.8 percent. Slifer argues that an increase in productivity will create a speed limit of 2.8 percent.
Adding fuel to the optimism fire, Slifer concludes that, with his prediction that the GDP will stay at a steady rate, economic expansion will continue until 2022.
If Slifer’s predictions are accurate, stock market followers are urged not to repent, because the end is still not in sight.