2018: What to Watch in the Economy
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What big economic question frames this episode about 2018?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen in New York. Not many people expected the massive run-up on Wall Street in 2017, but where should our radars be tuned in 2018? Wall Street Journal Heard on the Street editor Ken Brown is here with what the Heard on the Street team is focused on. So, Ken, we saw more than 70 record closes in the Dow Jones Industrial Average last year, fueled in part by a strong economy. But booming economy, that really hasn't pushed hourly wages higher and put significantly more money in people's pockets. That's something that Wall Street will have a close eye on this year.
Yeah, you're right. That's been one of the great mysteries of the economy in the last couple of years. Unemployment has fallen a ton and it's very, very low now by historic standards. And so when that happens, people have to pay more to get workers to come in the door and work. And that hasn't happened. And so everyone is wondering if and when that will happen. There is some evidence that's starting to happen, but we haven't seen a big jump.
And it's also on the mind of the Federal Reserve also.
Right. Well, so when people raise worker salaries, then either they if you're a company, either your profits go down or you offset it by raising prices and raising prices means inflation. And that's what the Fed cares about. And so if you see a big jump in salaries, then you probably would see, you know, higher interest rates.
Big tech had a big year in 2017, but for investors looking for the same rate of growth this year, as far as a herd on the street team goes, there might not be a repeat performance.
Right. Well, you can use the word big over and over and over again when you talk about these companies. Amazon, Facebook, and Microsoft, and Google have gotten just huge. The combined market gap of these companies is over $3 trillion now. And so how much can they keep growing? Well, their earnings have been great. And so that's one of the reasons driving it. But companies can't grow at that pace forever. Just as one example, Amazon can't take over every bit of retail sales in the United States. And Google can't do every advertising deal in the United States. And so there is a limit to the growth. And the question is, when do we see it?
And it's not a tech company, but industrial giant GE had a big year by getting smaller and streamlining some of its operations. But investors will want to see results this year.
Oh, man. I mean, one company that was really, really happy to see New Year's Eve was General Electric. It had a terrible, terrible year last year. But now they have new management and an activist outside shareholder, and they are really trying to turn this thing around. There's been some good moves. They cut the dividend, which people didn't like, but it did conserve cash. But now I think 2018, you're going to have to see some results in this company that's really just performed awfully. And if not, then, you know, people will really get nervous.
And while the stocks and wages are important to the U.S.
Why hasn't low unemployment driven up U.S. wages yet?
economy, so is the overseas economic landscape. We'll take a look at that in just a moment. We're speaking with Wall Street Journal Heard on the Street editor Ken Brown. And you're listening to your Money Matters from the Wall Street Journal. Welcome back, everybody. So, Ken, investors in the U.S. always have a close eye on China. And in 2018, Heard on the Street says its eyes will be tuned to the Chinese housing market.
The housing market is super important in China. And as the housing market goes, so goes the economy. Last year was pretty good for the Chinese economy, but largely because they took steps to get rid of a bunch of vacant housing. And they brought down the vacancy rate a lot. And that helped. But that was a little bit artificial and not sustainable. And so the question is, how does this market perform? If it doesn't perform well, then you're going to see all the demand for things that go into housing, steel and other infrastructure products, copper, all be hurt.
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