Economic growth is improving as we begin a new year

David Lundgren

January 10, 2018

From an economic perspective, the first year of the Trump administration ended on a relatively strong note. The recently signed Tax Cuts and Jobs Act features some of the most pro-growth tax cuts ever enacted.
 
Economic growth is improving as we begin a new year 
 
Just the expectation that the tax cut package would soon become law contributed to healthy end-of-year consumer spending. In November, retail sales were solid, reflecting the relatively positive consumer sentiment that we’ve seen for some time. The National Retail Federation (NRF) reported a 6% jump in the number of shoppers participating in Black Friday and Cyber Monday purchasing compared to the previous November. The NRF also is projecting combined November and December retail sales will top 2016 levels by around 4%.
 
People with jobs tend to spend more money than those who don’t, and the Department of Labor’s jobs report for November revealed that the prior month’s relatively low unemployment rate, 4.1%, is holding steady.
 
Another important measure of the employment situation is the workforce participation rate — the proportion of the work-eligible population that’s employed. That number held firm at 62.7% in November.
 
Average wage growth over the 12-month period ending in November was 2.5%, according to the Labor Department, a relatively modest gain considering the low unemployment rate.
 
The last quarter GDP annualized growth rate is likely to come in at 3% or above, following the 3.1% for second quarter and the 3.2% rate for third quarter. If it does, that will represent the first time since 2004-05 that we have experienced three consecutive quarterly GDP rates of 3% or greater.
 
On the heels of 2.5% growth in the first half of 2017, this accelerating growth rate apparently made Federal Reserve System governors comfortable maintaining their steady notching up of the discount rate. For top-rated borrowers it was raised by a quarter of a percentage point to 2% on Dec. 14. The move represents the third quarter-point hike since December 2016.
 
The Conference Board’s most recently updated Index of Leading Economic Indicators (LEI) showed a 1.2% uptick. The LEI index takes into account 10 data points covering the prior six-month period, including stock market performance, manufacturing orders and new housing permits. All three of those variables contributed to the LEI’s positive result, suggesting stable, if not spectacular, economic conditions into 2018.
 
Indeed, although rising consumer debt levels have created reason for some caution, improved growth, aided by the new tax law, bodes well for the economy in the coming months.
 
 
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Topics: CFO, News, Commercial Banking, Business Leader

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