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Monthly Economic Review: December 2017

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U.S. prospects for growth remain upbeat

As we approach the end of the year, the U.S. economy has considerable momentum heading into 2018. Growth in economic activity during the second and third quarters recorded better than a 3 percent pace, and the fourth quarter is expected to have performed solidly once the numbers are reported in January. Consumer spending has grown steadily and business investment has picked up. Given the sturdy pace, we feel confident that the United Sates will reach a record tenth year of expansion in 2018. Since World War II, the average expansion cycle has lasted almost five years. The last three expansions lasted an average of 94 months – almost eight years – a milestone the current expansion that began in July 2009 achieved six months ago.

Expansions do not die of old age but end by policy mistakes or by external shocks. Recessions are often marked by some type of event or policy that responds to an overheating in one or more key sectors of the economy. While there is currently near-record low unemployment and rising interest rates, no notable excesses are readily apparent and thus the probability of a recession is relatively low. The Conference Board’s Leading Economic Index offers evidence that the U.S. economy is doing well and that expansion should remain solid in the months ahead (see chart below). The index incorporates a mix of measures including manufacturing orders, workweek length, credit spreads, stock prices, building permits and consumer expectations. The key elements in this analytic system are designed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component.

Retail sales accelerated in November, increasing 0.9 percent over October on a seasonally adjusted basis, and 6 percent year-over-year unadjusted. Retail sales in November increased 4.7 percent on a three-month moving average compared with the same period a year ago, and signaled a potentially strong contribution to the final calculation of fourth-quarter gross domestic product. The spending trend confirms strong consumer fundamentals and the elevated consumer sentiment evident during the past year. The pace of job creation has been solid and unemployment rates are low. Gains in housing prices and equities have also boosted consumer spending. The improved willingness to spend and growing purchasing power are expected to be key drivers of the 2018 economy.

How the new tax plan influences consumer spending will take some time to be determined and plenty of questions remain. Consumer spending should get a boost, as the majority of taxpayers should benefit from reduced taxes. Nonetheless, tax or benefit changes do not usually affect consumers’ spending until they observe changes in their take-home pay. It may take several months for households to adjust to new tax exemptions, credits and deductions as they see what is added to disposable income.


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

  • Consumer sentiment
  • Payroll
  • GDP
  • Employment
  • Consumer prices
  • Wages
  • Income
  • Leading economic index