August 16, 2017
Midyear Outlook: What CEOs can expect from the economy for the rest of 2017.
Financial markets remain stable despite political controversy.As tax reform, regulatory reform and other programs stall, business owners can feel better knowing financial markets are still stable. Overall, the U.S. financial markets have experienced moderate underlying growth. The U.S. continues to sustain economic expansion – eight years after the recession. European markets have similarly experienced stable growth amidst political controversy.
GDP growth is likely to pick up.U.S. GDP was at 1.2% in the first quarter, in part because of lower rates of consumer and defense spending and a notable decrease in inventories. However, as consumer and defense spending rebounds, and business inventories along with them, the GDP should grow towards 3%. Compared to a global growth forecast of 3%, America will likely stay in the 2% to 2.5% range for 2017.
The economy is nearing full employment.With continued growth comes new jobs and lower unemployment. In May of this year, the unemployment rate fell to the lowest level in 16 years – 4.3%. As we reach full employment, businesses may find hiring to be more difficult. However, based on the average monthly change in nonfarm payrolls, it looks like labor markets will steadily absorb the labor supply over time.
Full employment and rising inflation means interest rate hikes.The economic expansion since the recession has seen low inflation. Now that unemployment is dropping and some prices are increasing, that’s starting to change. As a result, the Fed has been gradually raising interest rates. In its June meeting, the Fed increased the Fed Funds rate another quarter point, following three interest rate hikes over the previous 18 months.
While the 2016 presidential election may have been unpredictable, the U.S. economy has quietly and steadily continued to grow. We’re likely to see continued slow growth, though it’s worth noting that inflation, tighter Fed policy, political deadlock and global events could all impact economic outcomes this year. Pending any extreme changes, U.S. and global economic growth is likely to continue at least through this year and into 2018.
1 “’Trump Bump’ Lifts Stocks, Giving President a Win for His First 100 Days,” April 28, 2017, https://www.nytimes.com/2017/04/28/business/dealbook/trump-stocks-100-days-markets.html, Accessed 7/25/17