MUNCIE – The research center in which I work released our 2019 economic forecast this week. Like all economic forecasts, this one is likely wrong, but is hopefully useful. To talk about the forecast, it is best to re-examine 2018.

In many ways, this has been a good year for our economy. Employment growth nationally has been strong, and median wages for the world rose roughly one full percentage point above inflation. More people returned to work, with labor force increases strong throughout most of the year. It was, in short, a mostly good year, but the end of year news is far less salutary.

The Tax Cuts and Jobs Act, which I supported, proved a disappointment. Among its goals was the repatriation of between 2.0 trillion and 2.5 trillion dollars in assets held abroad. Only about 10% of that actually returned as investment. Another goal was to cause businesses to invest domestically. Business investment actually slowed deeply by year’s end. As it appears today, most of the economic effect of the TCJA was to promote domestic consumption.

Increased consumption caused the economy to grow more quickly in the first half of 2018, but it also led to higher budget deficits. Because we must borrow to finance these deficits, our trade deficit reached record levels by year’s end. The tax cuts were less beneficial than expected.

Unfortunately, most of the limited benefits of the tax cuts were offset by the growing trade war. The Trade Modernization Act of 1962 authorizes presidents to impose tariffs without consulting Congress. Tariffs are taxes levied overwhelmingly on U.S. consumers, dampening the benefits of other tax cuts and worrying businesses. The expectation of higher tariffs were sufficient to weaken the economy by late 2018, and today’s concerns are the story of 2019.

As of this writing, stock markets are now down for 2018, erasing a year’s worth of steady gains. The yield curve has inverted, signaling recessionary conditions and more informal indicators; for example, RV shipments to retailers will end the year in negative territory. The RV data worries me because fluctuations in sales of these big ticket luxury items have a better track record of predicting recession than any group of economists. On top of that, as the year ends, factory employment here in Indiana will end the year down from 2017.

New home construction has stalled and will likely decline throughout 2019, and, along with maybe four interest rate hikes, we should expect a deep slowing of construction jobs. Even if the Federal Reserve slows its rate increases, most indicators are of a slowing 2019. The sole good news comes from labor market growth, which is unfortunately a lagging economic indicator.

I am not predicting a recession, but it bears repeating that the growing trade war can easily yield negative economic growth.