The Real Economy

A monthly publication for middle market business leaders

The Real Economy

Economic Growth Expected to Moderate in 2019

The Real Economy: Economic Growth Expected to Moderate in 2019

The December edition of RSM’s monthly publication, The Real Economy, features insights from Joe Brusuelas, the firm’s chief economist, on his outlook for economic growth in 2019.

In 2019, the defining economic narratives for the middle market likely include continued trade tensions, more Federal Reserve interest rate hikes, a further decline in the unemployment rate to 3.4 percent and wage growth of 4 percent.

The Real Economy also looks at the projected moderate economic growth and urban-rural prosperity gap. A hot U.S. economy will likely cool noticeably in 2019 as the combination of receding fiscal stimulus, higher interest rates and a rising annual operating deficit begin to increase the cost of doing business. The mounting urban-rural divide is likely to be exacerbated in coming years as cities closely linked to the new economy (with jobs and skills related to technology, life sciences, finance and trade) see growth, productivity and wages expand at a faster pace than rural areas that remain linked to the traditional economy of manufacturing and agriculture.

In this month’s edition, we also take a deeper look into how the tariff exemption process works. We look at how best to apply, what you will need to do so, how long the process takes from application through comment period and how long the exemption lasts.

Internal auditors should understand the business issues highlighted here. These issues may create opportunities and/or threats to strategies, operations, finance and areas of compliance, and influence management’s efforts in addressing these areas. Internal audit has the opportunity to be part of these business conversations and provide insight into how these risks are managed. In addition, internal audit should be educating their respective audit committees on these areas of risk and opportunity.

With continued technological advances in areas such as artificial intelligence and machine learning, the need for oversight of external vendors will be front of mind for internal audit leaders. Ensuring third parties remain in compliance with terms and conditions of agreements will be essential. Additionally, as these technologies continue to advance and become more widely adopted, there is opportunity for internal audit to review the adoption and implementation by the business. Cyber and privacy challenges continue to be high-risk areas for organizations and need to be addressed within the internal audit plans.

Some industry considerations include:

  • Life sciences industry
    • The volume and variety of health care data should expand in 2019. Life sciences companies should consider how best to leverage growing information as they seek to bring effective and personalized therapies, drugs and devices to market, while managing cybersecurity risks.
  • Health tech and health care
    • Increased cost for health care creates an opportunity to leverage technology through artificial intelligence (AI) and machine learning (MI) in the industry opening the door for virtual attendants.
    • Medicaid expansion will lift health care through 2019 after several states voted through expansion initiatives, and several other states saw party changes in gubernatorial elections that make expansion possible.
  • Retail
    • Strong consumer spending should remain well into 2019, allowing for healthy top-line performance for most retailers. Managing margins and costs will become a strategic focus for middle market retail companies as they face higher costs.
  • Fashion and home furnishings
    • Strong consumer confidence, along with the threat of trade regulations and a tight labor market, will be dominant themes for the sector. Additionally, Amazon remains a threat as it continues its push into fashion with the ability to understand ever-changing consumer preferences through data analysis and its perfected speed though supply chain management.
  • Food and beverage
    • Data analytics and artificial intelligence will offer more transparency for companies to target consumers in 2019. While technology will continue to have an impact in 2019, rising interest rates may slow down capital expenditure. This makes it increasingly important for companies to prioritize technology investments.
  • Restaurants
    • Competition is growing from C-stores and grocery, which have been increasing their focus on prepared meals; and from Amazon, which is adding more cashier-less AmazonGo stores.
  • Financial services
    • The pace of rate increases going forward remains uncertain, and the effects on asset management could be significant. The rising interest rates call into question how investors will deploy capital and could create a sell-off for asset managers who prefer safer assets.
  • Industrial products
    • Forecasting calls for manufacturing growth to increase faster than the general economy in coming years. This sustained growth will continue to put strains on manufacturers as they compete for an ever-shrinking pool of talent.
  • Real estate
    • Changes in demographics will influence real estate as more people opt to rent, e-commerce grows and the density of offices increases amid an increasingly mobile workforce. In housing, homebuilders’ profits are being squeezed due to tariffs, lack of land and most significantly, a shortage of labor.
  • Technology
    • As the result of the concerns over a trade spat between China and the United States, some U.S. technology verticals, such as semiconductors, will be forced to absorb margin by adjusting their pricing structure or shifting their supply out of China.

For a deeper dive into these issues, click on the link below for this month’s issue of The Real Economy.​

Download the full issue now.

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About The Real Economy

The U.S. middle market makes up one-third of the country’s economy and employs one-third of its workforce, yet this economic growth engine is often overlooked. As the leading provider of assurance, tax and consulting services to middle market businesses, RSM wants to change the conversation.

The Real Economy is a monthly publication to help the middle market anticipate and address the unique issues and challenges facing their businesses and the industries in which they operate. Written by our chief economist, Joe Brusuelas, and including the insights of professionals throughout the firm, The Real Economy is RSM's answer to making sure the unique needs and opportunities of this important segment of our economy are given the attention they deserve.​​​​​​​