It is turning out to be a good year. Despite a modest regression in the first quarter and following a very strong 2017, 2018 is showing good signs. The balance of 2018 once again looks rosier. The government, which is typically a slight drag on the economy, has become a strong tailwind due to the strong mix of tax cuts and fiscal stimulus. Some observers have described this period as one that has enjoyed the most supportive (government) environment in many years. Growth should continue to be quite evident in employment gains but at a somewhat slower pace as fewer qualified candidates are available.
Businesses will likely continue to invest in technology and capacity enhancements as the labor supply shrinks and wages increase. Government spending, which was curtailed during the 2011-2014 sequestration, will likely see healthy net increases in a Trump administration as the new tax cuts and spending packages are in place.
The “Goldilocks“ economy could be with us through mid-2019. However, our investment markets still contain risk. The President’s trade and tariff initiative has triggered a sizable response from China, which should come as no surprise. The economic effects of this initiative will soon be calculated and will provide plenty of talking points for the midterm elections. Geopolitical risks have always been evident, but we too need a better strategy to negotiate workable trade policies that provoke a trade war.
3% growth in GDP for the balance of this year is what seems to be a consensus number from my best economic sources. I hope you are enjoying these beautiful summer days!