The economy has performed well in 2017, with more jobs, low rates and a sustained increase in confidence. Even with severe hurricanes in the 3rd quarter, GDP increased 3.3%. That this growth has occurred against a backdrop of rising interest rates and severe political drama, says a lot about the economy’s durability and strength. Remarkably, market volatility has been at one of its lowest periods ever recorded over the last year.
This strong performance is reflective of fundamental changes in regulatory approach across the economy. Deregulation and a more pro-business approach has engendered confidence and the elusive “animal spirits”.
In the early 80’s, Reagan sparked a huge run of growth through deregulation. From airlines to trucking to phone companies, Reagan took a knife to the regulatory leviathan, and unleashed the power of market forces. Today we see a similar playbook being enacted, less elegantly but just as potently as Reagan did.
When business sees government provide more latitude and less restriction, it completely changes the psychology of market and risk/reward behavior. When government gets out of the way, things get done faster and decisions can be made more confidently as to what the future may bring. Paradoxically, the current economy is also benefitting from the lackluster growth of the last administration.
With low labor participation and interest rates at the end of 2016, there was a lot of headroom for economic growth for the incoming administration. Going into 2018 we see a few things of note:
- Strong growth continues – the deregulatory dividend will be seen in full force in 2018 as GDP exceeds 4%, starting in the second quarter.
- The manufacturing renaissance continues – People are making things again in the US. People in other parts of the world see the US as a good place to make things. This is a huge positive for the economy and the country.
- Job growth remains strong – while unemployment is low, the labor participation rate has a lot of room to run. Infrastructure spending could kick start even more job gains in 2018.
- Stock market gains level out – The market has raced high, as volatility has remained low. Let’s hope any market correction is short lived and not damaging to long term confidence.
What are your thoughts on what the New Year will bring? Please post your comments to us on Facebook @AttractCapitalLLC or email me at [email protected].