The U.S. economy is buzzing and most businesses had a good or great 2017. ICA members are likely relaxed, giddy even, with the optimism over what 2018 will bring for their businesses. Here at ITR Economics, we are optimistic for the year as well but a bit more apprehensive when looking ahead to 2019, when we anticipate a mild downturn in the U.S. economy.
That is not to say that the U.S. economy is not thriving today; it is. U.S. private sector employment during the 12 months through January averaged 124.5 million employees, the highest level ever recorded in the US. This is up 1.8 percent from the year-ago level.
U.S. car wash employment is also at a record high, though at a much more modest level, averaging 169.2 thousand individuals during 2017. Hiring at car washes, up 2.2 percent from last year, is outpacing hiring growth across the broader U.S. economy. Record employment levels, both in the economy overall and the car wash industry itself, illuminate the economic vibrancy we are currently enjoying.
However, record employment also brings on another challenge and question for ICA members: Who’s left to hire? With the national unemployment rate sitting at 4.1 percent (seasonally adjusted), which is nearly a 17-year low, business owners are having difficulty filling open positions. There is little remaining untapped labor, which means ICA members will need to be more proactive in their efforts to both retain current employees and seek out new ones of all skill levels. Labor scarcity is an issue that we do not see being cured by a mild economic downturn next year.
While challenges arise from high employment, the good certainly outweighs the bad. A robust labor market is what creates and supports a healthy consumer pool, upon which both the U.S. economy and ICA members depend. U.S. total retail sales for 2017 were 4.2 percent above 2016. Retail sales will grow at an accelerating rate into the middle of 2018. However, we anticipate that consumer spending will slow in the back half of 2018 and take on a more pronounced decelerating trend in 2019.
Our proprietary ITR Consumer Activity Leading Indicator™ has declined through January 2018, suggesting that it is probable that the accelerating pace of growth in retail sales will level off in the first quarter of 2018 and diminish in a more pronounced way in the final three to four months of 2018 (based on its lead time).
This is part of our consistent expectation of decelerating consumer activity later this year that predates the passing of the new tax legislation, setting up an interesting test of whether or not the tax law changes really will boost consumer spending in the U.S. One of the intriguing aspects of the tax law changes is if we will see changes in business investment. Our historical analysis says that it is unlikely. We will monitor the trend and the trend dynamics to discern if the accelerated depreciation provisions of the law, or other aspects of the new tax code, alter the existing trends.
Day to day, ICA members may feel the most important thing to their business is the weather that week, a change in the seasons or the daily movement of the stock market; but the primary, long-term drivers are, and always will be, the consumer and economy. Fortunately, consumers are finding themselves in an optimal economic situation consisting of rising real wages, low unemployment and low inflation. U.S. disposable personal income during the most recent three months is up 1.8 percent and rising at the fastest pace in a year and a half. This means more money in the consumer’s pocket to shell out for washing their cars. Look forward to more of the same this year but plan on things tightening up at the end of the year and into 2019 when the economy and consumer face some resistance. Think of more customers pressing “basic” in lieu of “the works” than skipping the car wash altogether.
Don’t miss Connor Lokar’s session on economic forecasts, April 26 at The Car Wash Show 2018.