HOW DIVIDED GOVERNMENT WILL IMPACT BUSINESS IN 2019

On November 9, 2018, we welcomed divided government back to Washington.

What does that mean for business in 2019 and beyond?

The first thing divided government will offer is more noise, not less, coming from Washington. We can expect rhetoric, tweets, investigations and subpoenas to emanate at a fever pitch over the next two years.

At Thread, our goal is to “Connect. Simply.” We see through the noise and find elements essential to success. With that in mind, we offer this look behind the Washington circus to understand what businesses can expect over the next 24 months.

A Bunch of Things Will Not Happen

This is typical of divided government. The Affordable Care Act is not going to be repealed. Dodd/Frank isn’t going anywhere. Tax cuts will stay temporary (but also won’t be repealed) and government spending will likely continue at its current high levels. Which seems a little anti-climactic after all the hue and cry of the elections. In short, pro-growth policies like lower taxes, higher government spending and reduced regulatory burden will continue.

Perhaps the biggest impact on businesses is unemployment will continue to be very low and workforce shortages will continue to be an issue, limiting the ability to meet market demand. Beyond that, wages are beginning to rise in real terms for the first time in a decade and that trend should continue given the shortage of qualified workers.

The impact on the region’s business outlook is wide-reaching: increased costs, inflation, pressure to keep current employees. Accordingly, we are recommending clients invest in employee engagement and retention programs. Also, there are real opportunities for the Midwest to use its lower cost of living as a lure to get workers back home, where their dollar goes further.

The labor shortage will have impact on a policy area where Democrats and the Republicans agree…investment in the nation’s infrastructure. Even with political alignment, many observers doubt the national workforce can sustain the needed investment in infrastructure projects.

All that aside, the biggest uncertainty will be in the area of trade. Here also, Democrats are likely to be in support of President Trump’s position. This would include the USMCA (the new NAFTA) as well as trade relations with China and the EU. Trade issues impact different industries in different ways, whatever that might be, no one should expect trade action to stop or slow down anytime soon. If that’s good for you, let the good times roll. If not, be prepared. To the extent that tariffs are re-directing demand to domestic companies, we recommend 2019 as a year where robust marketing could result in some relatively immediate opportunities.

So, as the song says, “The Beat Goes On.” As challenging as things might be, they are generally growth-based and not contraction-based, favoring action in all areas of business planning.