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Hugh Johnson expects a good economy in 2018

Hugh Johnson expects a good economy in 2018

Veteran financial adviser expects Capital Region labor market to improve
Hugh Johnson expects a good economy in 2018
Investment adviser Hugh Johnson greets an audience member after delivering his 2018 economic forecast on Friday.
Photographer: John Cropley/Daily Gazette Business Editor

SCHENECTADY -- Investment guru Hugh Johnson mixed technical data with predictions, cautionary tales and a little self-deprecatory wit, as he laid out his 2018 forecast Friday.

The Capital Region Chamber hosted the annual address -- held in the Event Center at Rivers Casino & Resort for the first time -- and the room was nearly full with business leaders, academics and students.

Johnson, chairman and chief investment officer of Albany-based Hugh Johnson Advisors, makes regular appearances in the pages and broadcasts of national financial media, offering insight gained from more than 40 years in the financial industry. 

Friday’s forecast was the 29th for Johnson, whose company manages investment portfolios worth more than $1 billion and is a consultant on another billion-plus in investment assets.

The short summary? 

Things are going well for the economy as a whole, but not all parts of it; that will continue in 2018 but not forever.

Johnson reviewed some of the numbers from his 2017 forecast and found they were fairly accurate, in hindsight. The U.S. gross domestic product did not grow quite as much as he predicted, and the value of stocks in the S&P 500 index grew more than he predicted.

The economic recovery and stock market growth both have been stronger and much longer than average, he noted, leading to the obvious question: When does the economy contract and the bull market give way to a bear market? When does the strategy for running a business switch from growth to defense, and the strategy for managing an investment portfolio switch from appreciation to preservation?

Not in 2018.

Investors are migrating to more-volatile sections of the market, Johnson said, indicating they aren’t worried about the near-term prospects.

“They’re avoiding those safe sectors of the markets typically sought when things are going to turn down,” he said.

“Investors -- not individual investors, [investors] collectively -- tend to get it right,” he said.

Technical indicators show the risk of recession growing but still very low, Johnson said, though he added there are reasons to remain wary: Bank lending is slowing significantly, and population growth, workforce participation and labor productivity are weak.

Other things Johnson expects nationally in the coming year:

  • Continued but not large interest rate hikes by the Federal Reserve;
  • Light upward pressure on wages;
  • Light increases in consumer spending;
  • Some inflationary pressures but not a substantial increase in prices;
  • Continued stock market gains.

Locally, Johnson had good things to say about the Capital Region, starting with the Mohawk Harbor development, where he was giving his forecast.

“Go around and look at the community and all the work that’s been done,” he suggested to his audience.

The New York economy is likely to mirror the national economy, he said, and the Albany-Schenectady-Troy metropolitan area will be among the strongest in the state, with Glens Falls doing even better. (The strongest will be Ithaca, he said, confessing some puzzlement at this.)

Johnson called the Capital Region economy slow-growing but sound.

“The labor force in 2018 is going to grow,” he said. “That’s a big plus. The unemployment rate will come down, some.”

An underlying problem across much of upstate -- stagnant or shrinking population -- continues to affect the economy here.

“The problem is we’ve been losing labor force,” he said.

Johnson also weighed in on topics of timely importance to the finance world:


Investor interest in the cryptocurrency bitcoin has the look of a mania, Johnson said. The value of a single bitcoin has exploded more than 1,000 percent this year to briefly exceed $11,300 on Wednesday, making the collective value of all 16.7 million bitcoins greater than the 8.67 billion shares outstanding of General Electric.

“This does remind me of tulips,” Johnson said, referring to the Tulip Mania of the 1630s in Holland, when contract prices for a single bulb rose to astronomical sums before the market crashed, wiping out fortunes in the process.

“I do not know if this is a mania,” he added, advising extreme caution.


Johnson expressed skepticism about some measures of labor productivity, as the U.S. economy continues its transition from labor-based to knowledge-based production.

Adding up the number of employees and dollars of revenue at the top 10 U.S. companies in 1990 and 2016, he said, one sees that revenue has more than tripled, but the workforce has barely increased.

Johnson wonders if the value of the output of big new companies such as Facebook is even being measured accurately -- their model is so new that traditional metrics may not be effective. 

Regardless, he said, the situation creates a shortage of good-paying jobs, he said.

“That’s not over. That’s going to continue to present significant social problems. Employment conditions will get better, but they’re not going to get better fast.”

He had no suggested solution.


Johnson said there are two big questions about the tax reform package sought by Republicans in Washington: Will it favor the rich, and will it increase federal deficits?

“The answer to the [first] question is, it favors the rich,” he said.

The popular focus on the income tax rates under the reform plan is misplaced, Johnson said. Yes, the wealthiest fifth of taxpayers would get a bigger break than the poorest fifth, both in actual dollars and as a percentage of income, but not so much as to strike him as grossly unfair.

The real disparity comes in gift and estate taxes and the Alternative Minimum Tax, which generally don’t affect lower-income taxpayers -- cutting or eliminating them will mainly benefit the wealthy.

“It will aggravate income inequality,” Johnson said.

On the second question, Johnson dismissed the Republican contention that a $1.5 trillion tax cut will boost the economy enough to offset the lost revenue.

“The answer is, you will not get economic growth to offset” the cut, he said.

Also, look for ripple effects, he warned. In the long term, that could mean cuts to key government programs to pay for interest on debt. In the short term, credit could become more expensive because the federal government will have to borrow more money to close its larger deficits, which will put upward pressure on the credit market.

Friday’s event was sponsored by the New York Business Development Corporation and Teal, Becker & Chiaramonte, CPAs. 

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