Market Insights July 24, 2018: The Economy at Mid-Year: As Good as it Gets?

by | 24 July 2018

  • Recent economic data suggests growth picked up appreciably this spring after another moderate winter. Economic growth for all of 2018 should be the strongest in years.
  • Meanwhile, job growth continues to be healthy but well off its pace from earlier in the cycle as we near full employment.
  • With inflation and wage growth now within their target ranges, the Fed will continue its planned pace of moderate hikes this year and next year, providing the seeds for slower growth by 2020.
  • Growing trade tensions presents the greatest risk to continued economic growth, but the rising dollar provides another headwind to U.S. trade and prosperity.
  • Property market fundamentals remain near peak levels for this cycle, but further gains will continue to moderate in most sectors.

Almost everyone, it seems, is happy with the state of the U.S. economy. Surveys of both consumers and business leaders remain near 20-year highs. OK, not everyone. As in many aspects of our national experience, there is a decided split in perceptions of what’s going right or wrong in the country that is at least partly explained by party affiliation. But overall, most Americans are pretty positive about the current economic conditions.

As well they should. Despite yet another slow start to the year – GDP growth in the first quarter was adjusted down to just 2.0% – early indicators suggest that growth in the second quarter will be among the strongest in many years. The Atlanta Fed’s GDPNow model is predicting a very robust 4.5% growth this spring, at the high end of the range of forecasts by leading economists (The first official estimate of second quarter GDP will be released on July 27).

Growth for all of 2018 is expected to reach 3% by the panel of economists surveyed by the Wall Street Journal, which would be the highest rate since 2004. Meanwhile, the economy continues to create new jobs at a healthy rate – averaging just under 200,000 non-farm payroll jobs per month over the past year, about the same as in 2016.

Several factors are contributing to this stronger economic growth. As noted in our last quarterly newsletter, the U.S. economy has benefited from synchronized growth abroad fueling export demand for our products.  Business investment has been strong ever since the election of Donald Trump, partly based on expectations of favorable regulatory and tax policies. And the federal tax cuts and reform passed last year and the expansion of federal spending authorized this year are providing a jolt to the economy, with consumer spending peaking sharply.

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Andrew J. Nelson is Chief Economist for
 Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.

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