Monthly Economic Review: January 2017

U.S. economy poised for no ordinary year
Monthly Economic Review: January 2017

There is no doubt that 2017 will be no ordinary year. With the possibility of a number of market-altering events that could shape the course of the U.S. and global economies, forecasting what 2017 will hold is challenging. The accuracy of forecasts will be particularly sensitive to assumptions about “known unknowns.” There are European elections, Brexit negotiations, China’s ongoing rebalancing of its economy, OPEC oil production cuts, aggressive Federal Reserve rate increases and, of course, U.S. policy changes by the new administration and Congress. But while the widened band of uncertainty might be disquieting, the world has not changed fundamentally. Both the U.S. and global economies proved to be resilient in 2016 and are expected to pick up in 2017.

The economic fundamentals of the U.S. economy appear to be solid. After a slow start to 2016, economic activity in the third quarter accelerated with a 3.5 percent rebound in gross domestic product, the best quarter for economic growth since the fourth quarter of 2013. The fourth quarter of 2016 remained on a positive track as retail sales during the holiday season benefited from households having the ability and willingness to spend. Gains in jobs and income along with relatively low debt burdens provided the foundation for a 4 percent increase in holiday sales over 2015 that easily exceeded the 3.6 percent NRF expected. Access to and use of credit was a factor, along with a rise in home and stock prices.

It is clear that the U.S. consumer is in the driver’s seat and that the U.S. economy will continue to depend on the pace of household spending. Job growth has been good and wages are on the rise. Business and consumer confidence remain elevated now that the uncertainty of the election is behind us. Stock prices are resilient, the housing sector should advance nicely as home prices rise and disappointing business investment is expected to improve as the drag from energy-related cutbacks lessens. Under these conditions, economic activity is predicted to remain on a trend of approximately 2 percent. The unemployment rate should tick down to 4.6 percent by the end of 2017. With stronger wage gains along with oil prices trending higher, inflation is expected to move higher in 2017 and toward the Federal Reserve’s target of 2 percent. Look for the Fed to raise the federal funds rate twice in 2017: mid-year and in the fall.

This overview for 2017 reflects recent economic momentum and financial market moves but not impacts from proposed economic policy changes. The current laundry list of pending legislation will likely be pared down as the process proceeds, so it is prudent to wait to until a better sense of the scope and scale of policy changes are available. Over the next few months, uncertainty surrounding which policies will be implemented will be reduced and will help shape the contours of economic activity to come.

Download this month’s report, which includes the following charts and highlights:

  • Consumer sentiment
  • Holiday Sales
  • Payroll
  • GDP and unemployment
  • Income and consumption
  • Job openings
  • Housing market
  • Consumer price index

Retail's BIG economic panel 2017

At Retail’s BIG Show, NRF Chief Economist Jack Kleinhenz joined Yelena Shulyatyeva, senior U.S. economist for Bloomberg Intelligence, and Joe Feldman, senior managing director and the assistant director of Research at Telsey Advisory Group, in a discussion about economic trends.