Monday Morning Cup of Coffee: Potential government shutdown looms over 2019 economic forecast

Plus, small banks gear up for "deposit wars" and Apple drops $1 billion on Austin real estate

Monday Morning Cup of Coffee takes a look at the news that comes across HousingWire’s weekend desk, offering up all you need to know to start your week off right.

A recent Wall Street Journal poll revealed that most economists think the trade dispute between the U.S. and China poses the greatest downside risk to the economic outlook in 2019, but economists at Capital Economics disagree.

“We think the biggest downside risk next year is the possibility of a lengthy federal shutdown that could eventually develop into another debt ceiling crisis,” Capital Economics wrote in its weekly report issued Friday.

President Donald Trump and Democrats on the Hill can’t seem to strike a deal on federal spending, which means the government may shut down as soon as Friday if lawmakers can’t come to an agreement.

According to Capital Economics, a government shutdown is the darkest black cloud looming over the economic forecast in 2019.

The report notes that markets are currently “fairly sanguine” about the possibility, despite President Trump’s recent remark that he would be “proud to shut down the government” if his request for $5 billion to fund a border wall is shot down.

But the economists warn that a shutdown could be lengthy, weighing down the first half of the year.

“Previous shutdowns have had only a modest impact,” they wrote, “but this one could go on for months, particularly if a critical Mueller report convinces the Democrats to impeach.”

Moving on, interest rates are rising, and small banks are feeling the heat.

According to an article published Sunday in The Wall Street Journal, rising interest rates have small banks gearing up for “deposit wars” as higher rates may hurt some banks more than help them.

Regional banks are seeing profit margins compress as customers demand more interest on their deposits. As they pay up to appeal to depositors, the rates they are earning on loans are stagnating.

“Overall, profit margins from lending are still rising at banks of all sizes,” the article states, “But at many small banks, the metric has started to go in the opposite direction.”

The article quotes an analysis from investment bank FIG Partners, which states that net interest margin fell year-over-year in the third quarter for almost half of the small banks FIG analyzed.

The situation represents a widening gap between larger financial institutions and small banks. The bigger shops are investing heavily in technology to attract customers rather than pay higher rates.

But small banks, which often draw from a customer base of depositors and those with business accounts who are watchful of rates, are feeling the pressure to raise rates to retain deposits.

In other news, Apple is the latest tech giant to announce a major real estate investment to house its growing operations. This fall, both Amazon and Google made huge investments to expand their headquarters.

Apple joined in when it announced Thursday that it will be shelling out $1 billion to build a new 133-acre campus in Austin, Texas, that will have the ability to house 15,000 employees.

It also revealed plans to open offices in Seattle, San Diego and Culver City, California, and expand existing operations in Pittsburgh, New York, Boulder, Boston and Portland, Oregon.

And in case you missed it, President Trump announced via Twitter on Friday that Mick Mulvaney will replace John Kelly as acting White House Chief of Staff.

Mulvaney, who until recently served as the acting director of the Consumer Financial Protection Bureau, will also maintain his role as director of the Office of Management and Budget.

The White House confirmed Friday night that Mulvaney will keep his job at the OMB, and that because his focus will be on his chief of staff role, Russ Vought will handle day-to-day operations and run the OMB.

“Mick has done an outstanding job while in the Administration…I look forward to working with him in this new capacity as we continue to MAKE AMERICA GREAT AGAIN!” President Trump tweeted.

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