Economic & Real Estate Report - 2Q 2017
June marked the eighth anniversary of U.S. economic expansion, the third-longest of the post-World War II era. After a sluggish start to the year, economic growth rebounded during 2Q17. Several key metrics were reflective of healthy economic conditions, including 1) a strengthening manufacturing sector, 2) a strong labor market trending towards full employment, 3) high consumer confidence, 4) increased business spending and investment and 5) rising home prices. Primarily driven by strong corporate earnings, leading stock indices have continued to surpass prior record levels during 2Q17. Global growth in the world’s leading economies, specifically Europe, where political uncertainty has lessened, also appears to be escalating, which has boosted U.S. exports and has narrowed the trade deficit.
At its June Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) raised its benchmark interest rate by a quarter-point to a range between 1.00% and 1.25%, reflecting confidence in the U.S. economy and labor market. This marked the third 25 basis point increase since December 2016; however, recent soft inflation readings, as per the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, may diminish the likelihood of another rate hike in 2017. The Fed also outlined plans to shrink its $4.5 trillion portfolio of Treasury bonds, mortgage-backed securities and other assets it acquired in the wake of the financial crisis and recession to normalize its balance sheet as early as September 2017.
Still, numerous economic concerns and headwinds exist. Despite unemployment rates lingering at 16-year lows, wage growth has remained subdued. Additionally, homebuilding continues to be restrained, which is limiting sales, and declining demand for automobiles has led to ongoing weakness in retail sales. Politically, the pro-growth policies supported by the new administration have faced slow implementation and/or an inability to gain traction and there are increasing concerns about President Trump’s ability to deliver on his economic promises to boost the economy.