Economic & Real Estate Report - 4Q 2016
Despite a subpar GDP advance estimate, numerous economic indicators signaled strength within the U.S. economy to end 2016, including a) post‐election increases in business optimism and consumer confidence, b) stock market indices reaching new heights, c) steady consumer spending, d) escalating wages, e) the trending of the labor market towards full employment, f) a strengthening manufacturing sector, g) inventory rebuilding and h) rising home values. While sweeping fiscal and policy changes can be anticipated from the new Trump administration, the near‐term economic impact of such changes is expected to be minimal. In the month following President Trump's election, the already‐strong U.S. dollar appreciated further against foreign currency due to expectations of fiscal stimulus and a faster projected pace of rate hikes from the Federal Reserve (Fed).
In December, the Fed raised the Federal Funds Rate 25 basis points (BPS) for the first time in 2016 after expressing increased optimism in the economy. This latest increase represented just the second hike in 10 years, following the 25 BPS rate increase in December 2015. This brightening economic outlook raised the number of anticipated 2017 rate increases from two, projected last September, to three, each of which is expected to be 25 BPS.
Expected to support future rate hikes, the Consumer Price Index (CPI) indicated that headline inflation, which had been restrained by a strong U.S. dollar, sluggish wage growth and cheaper commodity prices, increased 2.1% in 2016, eclipsing the Fed’s 2.0% target for the first time since mid‐2014. As President Trump and the Republican‐controlled congress seek to reduce regulations, increase spending on defense and infrastructure, and lower corporate income taxes, economic growth is expected to remain steady in 2017.