Tags: Trump Administration | Trump Tax Reform | trump | tax | cuts | economy | 2018

Trump Tax Cuts Will Turbo-Charge Economy in 2018

Trump Tax Cuts Will Turbo-Charge Economy in 2018
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Wednesday, 03 January 2018 03:32 PM Current | Bio | Archive

  • INDICATOR: December Supply Managers Manufacturing Survey, Help Wanted OnLine and November Construction
  • KEY DATA: ISM (Manufacturing): +1.5 points; Orders: +5.4 points/ HWOL: +229,700/ Construction: +0.8%
  • IN A NUTSHELL: “The economy carried a lot of momentum into 2018 and that growth will be boosted by the tax cuts.”

WHAT IT MEANS: It is shaping up to be a very good year. The data for the December are starting to come in and they look really good. The Institute for Supply Management’s manufacturing index rose nicely, driven by a strong gain in new orders. Both export and import demand were up solidly. With orders rising, production expanded at an accelerated pace. The only negative, if it really is one, was a deceleration in the pace of job gains. Still, manufacturing firms are hiring at a solid pace and the growing order books should lead to even better payroll increases going forward.

The Conference Board’s measure of online job ads rose in December. There had been a nearly two year decline in want ads, but that started turning around in the spring. It looks like the pattern is clearly up again. Geographically, the increases were in almost every state and all metro areas reported. Eight of the ten occupations also showed increases in online advertisements. With unemployment falling and advertising rising, the pressure on firms to find qualified workers is high and worsening.

Construction activity continues to soar as well. The value of new construction jumped in November with private activity leading the way. Both residential and nonresidential building rose solidly. The increase in office and commercial building points to growing confidence in the staying power of the expansion.

MARKETS AND FED POLICY IMPLICATIONS: The economy is in really good shape. It is hard to find a sector that is weak. Even vehicle sales, which were expected to slow in December, appear to have come in at a very strong pace, possibly the second highest of the year. That implies fourth quarter growth should be in the 3% range and could exceed it. And once the tax cuts start hitting worker paychecks, we could see some acceleration in demand. Meanwhile, companies will have to figure out what to do with their large increases in profits that were created by the tax reductions. How they spend that largesse will determine the extent to which the economy grows this year. Will they be put to good use by funding capital spending or will they be squandered on stock buybacks and dividend increases, which increase stock prices but not productive capacity or efficiency? How much goes to workers versus executives or owners of capital will also determine the extent to which consumer demand rises. However that works out, growth should be in the 3% range this year and maybe greater. But as I like to say, no good deed goes unpunished. That pace of growth would drive the unemployment rate down below 4% and by year’s end, the 50-year low of 3.4% could be in sight. If that doesn’t raise wages, nothing will. And if that happens, the Fed will be raising rates more than expected. But for now, let’s enjoy the strong economic numbers, which should help keep investors quite happy.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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The economy carried a lot of momentum into 2018 and that growth will be boosted by the tax cuts.”
trump, tax, cuts, economy, 2018
Wednesday, 03 January 2018 03:32 PM
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