Robert Kaplan Discusses the Texas Economy at the CFA Society of Houston Luncheon

Robert Kaplan, president of the Federal Reserve Bank of Dallas, spoke recently at a lunch sponsored by the CFA Society of Houston. As Director of Investments for Horizon Wealth Advisors, I am a member of the CFA Society of Houston and had the opportunity to attend. At the lunch, Kaplan shared his current thoughts on the national and Texas economies, as well as his expectations for the coming year.  

Please see a detailed summary of Kaplan’s comments at the CFA lunch below:

U.S. ECONOMY

• Kaplan stated that the economy was weakened in 2019 due to trade disputes and manufacturing disruptions.
• However, he expects growth of 2.0-2.25% in 2020 and for the foreseeable future.
• The phase 1 trade deal with China and revised trade deals with Mexico and China lifts most (but not all) of the near-term uncertainty around trade.
• The biggest impact of the trade disputes was in the manufacturing sector.
• Business investment has been sluggish, especially in the energy sector.
  • Capital spending in energy sector has been weak due to low oil prices.
  • Expects production in U.S. to begin slowing as a result of reduced spending.
  • Coronavirus scare has had an impact on energy demand in the short-term.
• He reiterated his concerns from last year’s luncheon over “structural issues” that he thinks will present challenges over the next few years:
  • Aging population, which will shrink the workforce.
  • Slow growth in the labor force caused by low birth rates and slowing immigration.
  • “Skills gap” in the labor force where undereducated workers are being phased out of unskilled labor opportunities by technology and automation.
  • The above have combined to result in sluggish productivity growth.

TEXAS ECONOMY

• Kaplan expect Texas to continue to outgrow the rest of the U.S.
• Although workforce growth has stagnated in other states, worker and companies have been moving to Texas.
• Texas’ workforce has grown from 22MM in 2010 to 29MM in 2020, with growth expected to continue.
• Favorable tax climate in Texas has played an important role in growth.
• Believes the state should focus more educating and training unskilled workforce to increase productivity.

FED POLICY

• Kaplan thinks the Fed will remain “on hold” for the foreseeable future.
• Commented that “monetary policy can help the economy grow, but it cannot raise the economy’s potential.”
• Only multi-year structural reforms will raise the growth trajectory for the economy.
• Long-term, the U.S. will need to grow faster to handle the increasing national debt.

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