America’s New Normal; Great Potential in 2017 But Uncertainty Abounds
On November 8, 2016, the message was clear, American voters wanted change in Washington, what we have been witnessing however, is not change but revolution. By mid-February it became apparent that chaos is now the new normal and that the expectations we had about economic stability must be reevaluated.
The Consumer Confidence Index, a measure of how Americans feel about their future, spiked nearly 10 points in December and January, some called this the Trump Effect. Business Confidence also soared, that reflects the hopes that a deep cut in corporate taxes will bring foreign profits of American Corporations back into the US economy. A tax cut, as is being proposed, will precipitate an expansion in consumer spending and if you combine domestic spending with planned infrastructure spending, massive tax cuts and deregulation, America has a recipe for 4% plus growth in GDP as well as significantly increasing the wages of American workers.
For this plan to work, tax reform, deregulation and massive spending on roads and bridges, would have to be assiduously handled to avoid the pitfalls that have driven some of the Administration’s recent decisions. It will be critical that Trump’s team look at each opportunity in light of how it can improve the opportunities that have the potential to expand our economy and avoid the obvious hazards.
The chief concern among economists about such a plan would be a rapid rise in inflation. An overheated economy will force the Federal Reserve to raise interest rates, this would cause the dollar to spike dramatically. The debt crisis that would develop among nations holding American dollars, because of the dollar’s status as the world’s reserve currency, would create instability in foreign economies. The probable recoil into the U.S. economy would have an extremely negative impact on consumer spending, GDP and our financial markets.
Secondly, it is hard to know if the new administration is serious about trade wars but if the U.S. does decide to put 20% to 35% tariffs on goods from major exporters like Mexico, China and even as has been discussed, the European Union, it could roil world markets in a way that could take years to recover. Keep in mind that the United States has spent the last half century putting together a coalition of countries as economic and military partners, this vital work has helped to develop economies of friendly nations and created alliances that have benefitted America. There are serious concerns about these plans over the next few months and how the U.S. moves ahead will determine the future of our economic success.
A quick look at the latest economic news at the end of March was promising, job growth came in at only 98,000 new hires but unemployment dropped to 4.5%. With wages up 3.5% in 2016 and America’s labor market nearing full employment, the outlook for this year is fairly optimistic.
The Commerce Department reported that housing starts increased 11.3% last month and the consensus among Economists has housing starts at 1.2 million in 2017. Increasing home sales and rising equity are a good indication that consumers will continue remodeling at a brisk pace this year.
Consumer spending in all of 2016 was up 3.5% but the largest increase came from the purchases on long lasting manufactured goods like automobiles, furniture and appliances. Consumer spending will be reliable predictor for growth in our industry this year.
So when asked at conventions about our economic future in 2017, my answer is simply this, we have strong momentum, consumer confidence is the highest it has been in nine years, Americans are spending money like they did prior to the 2008 recession, automobiles had record sales in 2016 and housing is still in a growth mode. There is both great opportunity in America with new leadership and considerable uncertainties that we will face over the next 12 months.