Economic Outlook – November 2017

November 8, 2017 Economic Outlook
  1. U.S. Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the third quarter (Q3) of 2017. In Q3, hurricanes in various regions of the U.S. hurt economic activity, but that impact was offset by overall increases in consumer and business spending. Q3 GDP growth was further helped by increased demand for U.S. goods due to improving international economies and by the restocking of inventories. Following a 3.1% increase in GDP in the second quarter; economic growth over the past six months has accelerated from the previous six months and is above the average 2.2% recorded in the recovery from the Great Recession of 2008-2009. Current fourth quarter estimates show a further acceleration towards 4.0% growth. The final three quarters of 2017 will make up for a lackluster first quarter and we forecast 2.5% – 3% U.S. GDP growth for the year.

  2. Employment in October rebounded from the hurricane related slowdown in September, as payrolls increased by 261,000 during the month. The report also showed upward revisions to the payroll numbers for the months of August and September. The unemployment rate declined slightly to 4.1%; however, the average workweek and average hourly wages were both unchanged in October. Wages had been expected to show increases for the month, especially since wage gains in September had been above expectations, but the storms may have adversely impacted the data. We believe that wage gains will rebound from the October lull and that the outlook for both employment and wages is favorable going forward.

  3. President Donald Trump has nominated Jerome Powell to be the new chair of the Federal Reserve Open Market Committee. Assuming Mr. Powell’s nomination is approved by the Senate, he would succeed Janet Yellen when her term as chairperson expires in February 2018. Mr. Powell is currently a member of the Fed’s board of governors and has served since 2012. His education is in the law and, in addition to practice as a lawyer, his career prior to joining the Fed included finance and government service. Mr. Powell would be the first Fed chair since 1979 who does not hold either an undergraduate degree or a Ph.D. in economics. Mr. Powell is known for a balanced, pragmatic approach to both the policy and the functioning of the Fed and, given the continuity he represents at this critical juncture, we view his nomination positively.

  4. At its October meeting, the Fed left short term interest rates unchanged. The program to reduce the securities held at the Fed is also to continue as scheduled. The Fed next meets December 12-13 and we expect a 0.25% increase in short term interest rates, which would bring their target to 1.25% – 1.5%.  Looking ahead to 2018, the outlook is for further increases in short rates. We do not currently foresee any deviation from that course even with a new chairperson at the Fed.

Sources: Bloomberg LLC, FactSet, U.S. Department of Labor

* 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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