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Economist Scott Brown On Labor Constraints, Tariffs And Why The Pace Of Growth Is Going To Slow Down In 2019

Dr. Scott Brown, chief economist and senior vice president equity research for Raymond James & Associates, the $6.37 billion diversified financial services firm, expects the pace of economic growth to slow next year.

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Slower Growth In 2019

Dr. Scott Brown, chief economist and senior vice president of equity research for Raymond James & Associates, the $6.37 billion diversified financial services firm, says he expects the tight labor market is going to lead to slower economic growth next year.

"I don't think we are heading into an economic downturn any time soon," said Brown, who serves on the Economic Advisory Committee of the American Bankers Association. "We don't see a recession anywhere on the immediate horizon. But we do anticipate the pace of growth is going to slow down and it is largely a function of the amount of labor that you can put into the economy."

Noting that the U.S. is reaching a level of "near-full employment," Brown expects GDP growth of around 2 percent next year, down from the 4.1 percent in the U.S. in the second quarter, the best quarterly showing since 2014.

"Most economists have raised the odds for a recession developing maybe later next year or in 2020," he said. "Part of that may be the Fed continues to raise rates. Maybe they raise rates too much at some point and the overall economy starts to cool off. We certainly don't have the same kind of imbalances that we had ahead of the financial crisis. Banks are much better capitalized, so we don't really expect to see a collapse in credit like we did. We may end up being susceptible to shocks at some point again, particularly as you look toward the second half of next year."

Can you talk about the state of the economy?

The economy has been in good shape for a while. This year we have had some pretty massive fiscal stimulus, which means deficit spending and that, I think, is turning out to be probably a lot bigger than we thought it was going to be. At the same time, we are running into constraints in the job market because the unemployment rate is so low. You are kind of running out of people to hire. You are seeing some increase in nominal wages, but you have also had an increase in inflation. The typical worker may not be feeling it just yet. We are seeing moderate growth in consumer spending, moderate growth in business investment.

We expect things to kind of cool off a little bit in the remainder of the year into next year, again largely reflecting the labor market constraints as well as the fading of the fiscal stimulus.

Can you talk about the trade concerns around tariffs?

You obviously have these trade concerns that are kind of hanging over things. You saw the market rally recently even though we have had the implementation of tariffs on another $200 billion. To date, the impact of tariffs has been overall pretty mild. It has been obviously noticeable for people that use steel and aluminum. The lumber tariffs that went into effect last year raised the average price of a home. You are seeing the retaliation hitting the farm sector here.

But overall the impact, say, on GDP is barely noticeable. It may increase. In fact, we expect it to increase a little bit in the next several months. But by itself it is not enough to throw the U.S. economy into recession. It is just going to trim growth a little bit.

At the same time, you have got the Fed raising short-term interest rates. We expect the Fed to raise rates again and, more likely than not, we'll see another move in mid-December. And as a consequence, you are likely to see long-term interest rates edging up. For the tech sector, obviously the trade policy issues are going to be pretty important.

 
 
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