2017’s strong economy creates optimism for 2018
The 2017 economy gave a lot of love. Many companies turned in solid profits, more people were working and getting pay raises throughout the year (hopefully that was you!) and high consumer confidence led to more household spending. Taken together, these factors help set the stage for more jobs; stronger demand for goods and services; and more investment in infrastructure, equipment and technology. Bob Baur, executive director and chief global economist for Principal Global Investors, breaks it down further:
2017 bright spots.
Wages grew in 2017, the strongest growth since March 2009. When we as consumers get paid more, we tend to spend that extra money on goods and services. Consumer spending accounts for nearly 70% of all spending in any given year, so anytime we ramp up our spending it's great for the economy.
Strong business confidence
Increased demands for goods and services often make CEOs optimistic that demand will continue, motivating them to invest in their businesses and contributing to the low unemployment rate and positive job growth. Eased regulations in 2017 continue to make CEOs more financially confident this year.
Growth in the GDP
Another positive economic indicator was the more than 3% growth in gross domestic product (GDP) over 2 consecutive quarters.1 While that doesn’t sound like much, economists believe it’s the ideal pace to sustain a robust economy. And with 9 straight years of market growth in the U.S., typical market patterns might mean a dip is coming—but if or when that will happen is hard to predict.
What is GDP, and why does it matter?
Gross domestic product is simply the value of all goods and services purchased in the United States in a year. This added up to: $18.57 trillion in 2016.2 GDP growth means more goods and services were purchased in the U.S. this year than the previous year.
The biggest GDP drivers are things you might buy or industries you may be employed by like:
Outlook for the year ahead.
Several factors have many economists expecting the good times to roll into this year.
Continued wage growth
While you might not want to max out your credit card in giddy anticipation, economists anticipate wage growth to hit the 3% range this year.
Optimistic businesses are likely to continue investing in expanding facilities, buying new software, and purchasing high-tech machines to help increase business productivity and efficiency.
Taxes are a big conversation in American politics. As corporate taxes are cut, businesses might keep more of the money that they usually end up sending to Washington D.C., resulting in increased wages, investment in capital spending or in new product development. Read up on 13 important tax reform changes that might impact you.
Keep tabs on your finances.
While things look rosy this year, here are a few things to watch for that may help you keep in step with your long-term savings goals:
1. Rising interest rates
If the economy continues at its current pace, the amount of interest rate hikes contemplated for 2018 may change and keep rates still relatively low. Know the good and bad to rising interest rates.
2. Rebalancing your investment portfolio
With 9 straight years of U.S. market growth, there’s a chance the value and original mix of investments no longer aligns with your goals. Revisit your investment mix within your various accounts and rebalance if needed. Or, maybe the new investment mix is actually a move in the right direction. That’s okay too.
3. Staying focused
Break through the clutter and identify economic factors that most impact you and your savings goals. And we can help you stay educated.
Navigating the ups and downs of the markets doesn’t have to be complicated. We’re here to help you save for the retirement you want. Whenever that might be.
1 Per commentary, Bob Baur, PGI. See video.
Unless otherwise noted, all data is sourced from Bloomberg.
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