Economic Outlook – December 2017

December 11, 2017 Economic Outlook
  1. The U.S. economy’s pace of growth in the third quarter was raised to 3.3% from 3% under the government’s latest revision to gross domestic product. The government’s advanced report on wholesale inventories showed a 0.4% decline in October, while retail inventories slipped 0.1%. This trend indicates rising consumption. The U.S. exported far less food and livestock feed in October and overseas shipments of capital goods and autos also fell. Contributing to stronger GDP was public spending. Government outlays were revised from a small decline to a mild increase. The rate of consumer spending, however, was barely changed at a still-solid 2.3%. The U.S. has topped 3% growth for two quarters in a row and the economy is poised to make it three for the first time since 2004-2005.

  2. The news on the economy had previously been good, but it just got better. As labor markets have tightened and the availability of skilled labor has diminished, businesses appear to be looking to upgrade equipment to improve productivity. Consumer confidence is at a 17-year high, unemployment is at a 17-year low and businesses are flush with cash amid improving profits. Banks and other financial companies are doing especially well as they have accounted for two-thirds of the increase in third-quarter U.S. corporate profits. If Congress comes through with major tax cuts, businesses could get another jolt of adrenaline in 2018.

  3. A top Federal Reserve official said that he sees a reasonable case to raise short-term interest rates this month, and that any new fiscal stimulus approved by lawmakers in Washington could shape the central bank’s expectations for additional rate increases in 2018. New York Fed President William Dudley said in an interview that any effort to make the tax code less complex “makes sense.” But with the economy expanding solidly and the unemployment rate at a low level of 4.1%, Fed policy makers will be watching closely to see whether any tax changes might cause the economy to overheat.

  4. Consumer confidence surged yet again in November, with the index jumping to 129.5 from 125.9 in October. That’s the highest reading since November 2000 and easily exceeded the 124.8 forecast of economists polled by Dow Jones. Americans ramped up spending in the early fall, and there’s little sign it will let up ahead of Christmas spending. Some of the increase in spending in October was on necessities such as prescription drugs, but Americans also spent more on recreational goods and plane fares for foreign travel. Both are signs of confidence in the economy.

  5. An early look at U.S. trade patterns in October points to sharper-than-expected increase in the nation’s trade deficit at the start of the fourth quarter. Export growth was lowered slightly to 2.2%. The trade deficit in goods jumped 6.5% to $68.3 billion, according to a government’s report. That was much larger than the $65 billion estimate of polled economists. The surprisingly larger increase in the October trade deficit could be a drag on fourth-quarter GDP unless it’s reversed in the final two months of the year. “Unexpectedly bad, but one month is not a trend,” said Ian Shepherdson, chief economist of Pantheon Economics. A larger deficit can be a negative for U.S. economic growth.

Sources: Bloomberg LLC, U.S. Commerce Department, Bureau of Labor Statistics, Dow Jones Inc., MarketWatch, Standard & Poors, Federal Reserve BankFactSet

* This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.


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