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Galveston County
Rotary Club of Galveston Island
by Garrett Bryce w/photos and audio by Juan Peña
Thursday, January 11, 2018

The Rotary Club of Galveston Island recently hosted Shrub Kempner, president of Kempner Capital Management, to provide his annual report on the economy.

Kempner opened his comments regarding a prediction he'd made the previous year.

“I hope you enjoyed your lunch, I have to say mine tasted just a little bit like crow,” Kempner joked. “Because I stood in front of you last year and said that I thought there would be a 50 percent probability of a recession in the U.S. economy. I was thoroughly wrong.” Listen (42:02)

Kempner said he overestimated “the possible negatives” in his predictions, including aspects of the tax bill, and the strength of the world economies.

“This is the first time in a decade that almost every major world economy is moving ahead strongly,” Kempner said.

He went on to discuss the coming year, where he said he expects United States GDP to grow at a rate of approximately 2.5 percent. He said several economists are predicting higher growth in 2018.

“This kind of perception is based on strength in jobs in the manufacturing sector particularly, on possible effects of the U.S. tax cut, and on this same remarkable worldwide confluence of economic growth in every major region,” Kempner said.

He said those factors exist, but said there were “headwinds” that may slow growth.

Kempner noted that wages should increase due to shortage in labor, and discussed whether consumers will be spending funds they receive in tax cuts or whether they save money. He suggested that consumers will not “spend liberally.”

Factors that he said would reduce the GDP this year include increases in the short-term interest rate by the Federal Reserve. He also said that there is a statistical matter involving the trade deficit, which has been increasing.

“We expect that this will continue and will get even more remarkable in terms of size during 2018,” Kempner said, noting this occurs when the U.S. economy is strong.

He said the trade deficit will reduce the GDP by as much as one percent during 2018.

A final factor is possible ending of the North American Free Trade Agreement, or NAFTA.

“This part of the world, in particularly, would be devastated if NAFTA broke up and we had to revise all those trade agreements and everything else,” he said.

He termed 2.5 percent growth as “not bad, but not a stellar year.”

“Sure as well not a recession, however,” Kempner said.

For Texas, Kempner noted that oil prices are expected to increase slowly during 2018, which he said would strengthen the state's economy.

He also noted the impact of Hurricane Harvey.

“Harvey recovery is also adding a small amount to Texas overall in terms of employment and economic activity,” Kempner said, stating that Texas' economic statistics to be marginally stronger in 2018 than 2017.

For Galveston, he said that the strength or weakness of Houston's economy has a major effect on Galveston tourism.

“When Houston grows our tourism grows if weather permits,” Kempner said. “It's as simple a formula as that.”

He said Houston's energy complex is likely to strengthen, and Galveston should benefit, weather permitting.

Kempner then discussed the Ike Dike project, and the Pelican Island bridge. Then he answered questions from those in attendance in the meetings.

HomeTown Bank Ocean Star
Remembering Jim Guidry

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