Economic & Real Estate Report – 4Q 2017 | FTI Consulting

Economic & Real Estate Report – 4Q 2017

Real Estate | Corporate Finance & Restructuring

March 20, 2018

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Although the 4Q17 GDP advance estimate indicated that growth softened, many key economic indicators signaled strength within the U.S. economy to end 2017, including a) unemployment rates remaining at a 17‐year low, b) the escalation of job creation to its strongest quarterly pace during the year, c) steady business investment, d) consumer confidence levels lingering near 17‐ year highs, e) increasing home values, f) rising retail sales and g) robust construction outlays. Stock indices continued to reach new highs during 4Q17, fueled by the anticipation of corporate tax cuts resulting from the passage of the Tax Cuts and Jobs Act (TCJA), strong corporate earnings and future economic growth.

Strengthening domestic demand also reflected in a widening trade deficit to end the year. Stronger global growth and a weakening U.S. dollar have benefitted U.S. exporters, which has bolstered the U.S. manufacturing sector and driven orders higher for factory, industrial and durable goods; however, imports have increased at a faster rate due to brisk consumer outlays, which have, in part, sent the savings rate to a 12‐year low. Economists believe the weaker dollar has resulted from a resurgent European economy that is driving more investors to the Euro and increased U.S. political dysfunction.

In November, Jerome Powell was chosen to replace current Fed Chair Janet Yellen in February 2018. At its December Federal Open Market Committee meeting, the Fed raised its benchmark interest rate (between 1.25% and 1.50%) for the third time in 2017 after expressing optimism regarding the labor market. During 4Q17, the Fed also began the reduction of the $4.5 trillion balance sheet it acquired in the wake of the financial crisis.

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