For the first time since the middle of 2014, the US economy has
sustained 3 percent growth for two consecutive quarters, providing
strong momentum into next year. The current Conference Board forecast
calls for 2.8 percent growth during the final quarter of 2017 and 2.5
percent growth in 2018.
This would represent the economy’s best 2-year
run since 2005.
Business investment has awakened from the doldrums this year, rising
by more than 4 percent after falling into negative territory in 2016.
Confidence in the manufacturing sector has been especially strong.
The
composition of growth supports a long-term improvement in productivity.
Capital equipment has risen at an 8.7 percent annual rate during the
past two quarters, while investment in warehouse structures is up more
than 20 percent since the end of last year. These investments
demonstrate a renewed firm commitment to increased efficiency.
Consumer spending eased a bit in the third quarter, but with The
Conference Board’s Consumer Confidence Index still strong and housing
prices rising, expect a robust holiday season.
One encouraging sign was
the pickup in motor vehicle spending thanks to renewed demand following
the two hurricanes. Should employment growth rebound quickly from last
month’s storm related decline, tighter labor markets should translate
into a renewed wage acceleration which could boost spending late this
year or into 2018. The possibility of federal income tax cuts could do
the same.
The economy enters 2018 in good position to maintain strong growth
from 2017.
Current Fed chair Janet Yellen and new Fed chair nominee
Jerome Powell may raise rates slightly faster as a result. These
expectations have led long-term rates to rise modestly.
The dollar has
also started strengthening since early September after weakening through
much of 2017, creating less favorable terms of trade. Higher capital
costs and the possibility of a less supportive external environment for
growth have not rattled the market yet.
With growth prospects strong for
2018, profits should grow robustly as well, rewarding those businesses
that increase investment levels.
Read more: U.S. Forecast | The Conference Board
