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U.S. Economic Outlook: 2018 Anticipated to Keep on Giving

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 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

  • Wage growth — Wages grew in 2017, the strongest growth since March 2009. When consumers get paid more, they tend to spend that extra money on goods and services.

  • 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 more than 3 percent growth in gross domestic product (GDP) over two consecutive quarters.1 While that doesn’t sound like much, economists believe it’s the ideal pace to sustain a robust economy. And with nine 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. That 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 include:

  • Energy — Consumed in our homes, businesses and most transportation modes
  • Manufacturing — Produced by people, machines and other resources
  • Transportation — Moving freight and people from point A to point B
  • Healthcare — Caring for all of us throughout our lifetime
  • Agriculture — Supplying our grocers and feeding society

Outlook for the year ahead

Several factors have many economists expecting the good times to roll into this year.

  • Continued wage growth — Economists anticipate wage growth to hit the 3 percent range this year.
  • Capital spending — Optimistic businesses are likely to continue to invest in expanding facilities, buying new software and purchasing high-tech machines to help increase business productivity and efficiency.

Tax reform — Corporate taxes were reduced from 35 to 21 percent, which may result in increased wages, investment in capital spending or in new product development. Read up on 12 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 your clients keep in step with their long-term savings goals:

  • Rising interest rates — If the economy continues at its current pace, the number of interest rate hikes contemplated for 2018 may change and keep rates relatively low. Know the good and bad to rising interest rates.
  • Rebalancing investment portfolios — With nine straight years of U.S. market growth, there’s a chance the value and original mix of employees’ investments no longer aligns with their goals. Encourage employees to revisit their investment mix.
  • 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 your clients save for the retirement they want. Whenever that might be.

1. Per commentary, Bob Baur, PGI. See video.
2. http://databank.worldbank.org/data/download/GDP.pdf

Unless otherwise noted, all data is sourced from Bloomberg.

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