Amid Uncertainty, U.S. Economy Potentially Stronger in 2017

Jan 10th, 2017 | By | Category: Commentary

By Randy Shumway
Zions Bank Economic Advisor

Randy Shumway (Submitted Photo)

Randy Shumway (Submitted Photo)

Wall Street markets registered gains the day immediately following the U.S. presidential election, signaling that investors remain optimistic about the future of the economy.

Amid the initial sanguine reaction, many economists and market analysts expect more uncertainty to enter the market in the next few months. The overall economic impact of the presidential election remains uncertain. The global economy is somewhat in a holding pattern to see what will happen.

Despite the uncertainty of markets in the short- and medium-term, the U.S. economy entered November on a positive note. The initial GDP growth estimate from the Bureau of Economic Analysis for the third quarter of 2016 registered at 2.9 percent—the highest quarter of growth this year and 0.4 points above the expected 2.5-percent increase.

Regardless of the political climate and events, there are several metrics that suggest a potentially stronger 2017. First, wage growth is beginning to accelerate. Wage growth decelerated between mid-2014 and early 2016, but now it is turning and increasing faster than inflation. Greater wage growth represents an increase in spending power, which may translate to higher consumer spending. On a related note, employment is increasing along with wages.

Second, retail sales are up. As of July 2016, retail sales were 0.9 percent higher than they were a year prior. Annual growth increased to 3.4 percent in September 2016. Since consumer spending has been the primary driver of GDP growth over the past several quarters, increased retail sales indicate continued GDP growth.

Third, manufacturing and purchasing have been growing at a relatively constant pace over the past few months and are expected to continue growing. This move toward positive growth is a welcome shift from the constriction of the manufacturing industry that resulted from the oil glut.

There are many factors that could affect the trajectory of the U.S. economy, and while there is still much uncertainty regarding the economy, the overall outlook for 2017 remains healthy.

Idaho Enjoying Strong Labor Force Participation, Job Growth

Idaho’s unemployment rate held steady at 3.8 percent for the third month in a row in September. Nonfarm payrolls increased this month by 2,000 jobs. Compared to a year ago, Idaho has added 21,500 nonfarm jobs to the economy, and the current employment level registers at 782,294.

Idaho ranked third in the nation for year-over-year job growth this month. The state’s labor force participation rate, which remained unchanged at 64.1 percent this month, also outperforms the national average of 62.9 percent. A high labor force participation rate coupled with low unemployment indicates that even unemployed residents are encouraged by the state’s current economic strength and are still actively seeking job opportunities.

Idaho’s Housing Prices Continue to Rise

Home prices continued to rise slightly across the nation and in Idaho in September. Idaho’s home prices increased 0.3 percent from August to September, and have risen 7.7 percent since September 2015. Home prices in the state are forecasted to increase 0.2 percent this month and 4.9 percent in the next year.

In a new report from Veros Real Estate Solutions, the Boise City area was ranked as the fifth-strongest market in the nation, with a forecasted appreciation of 9.7 percent. Low inventories and high demand are expected to continue to bolster an already-strong Idaho housing market.

Shelter and Gasoline Driving Increase in U.S. Consumer Price Index

The U.S. Consumer Price Index (CPI) has increased 1.5 percent over the last year, which is slightly under the Federal Reserve’s annual inflation target of 2 percent.

The rise in the all items index was driven by increases in the shelter and gasoline indexes. The gasoline index rose 5.8 percent in September and the shelter index rose 0.4 percent, its largest increase since May. The energy index rose 2.9 percent in September. The index for all items less food and energy increased 0.1 percent this month. Meanwhile, over the last 12 months, the food index has declined 0.3 percent.

U.S. Consumers Report More Confidence

The U.S. Consumer Confidence Index rose 6.3 points to 107.1 from October to November. The Present Situation Index, which measures sentiment about the current state of the economy, increased from 127.9 to 130.3. Meanwhile, the Expectations Index increased from 83.9 to 91.7, indicating more confidence in the state of the economy six months out.

Consumers are slightly more optimistic about the future, as indicated by the percentage of consumers who expect business conditions to worsen—down from 11.0 percent to 10.0 percent this month. Perspectives about the future job market are also slightly more favorable: those who anticipate more jobs in the months ahead remained unchanged, while those anticipating fewer jobs decreased from 16.6 percent to 13.8 percent.

Randy Shumway is CEO of the Cicero Group, the exclusive data analytics and economic consulting firm to Zions Bank.

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