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Overall, the economy is in reasonably good shape, and in conjunction with our Allianz colleagues we have raised our 2018 GDP forecast to 2.6% compared to 2.4% just a few months ago. Here are some recent reports.
After tax corporate profits rebounded from Q2’s -2.0% q/q loss to +4.9% in Q3, sending the y/y rate from +7.4% to +10.0%. Corporate profits have risen in 6 of the past 7 quarters, a definite positive for the economy.
Overall, the economy is in reasonably good shape, and in conjunction with our Allianz colleagues we have raised our 2018 GDP forecast to 2.6% compared to 2.4% just a few months ago. Here are some recent reports.
After tax corporate profits rebounded from Q2’s -2.0% q/q loss to +4.9% in Q3, sending the y/y rate from +7.4% to +10.0%. Corporate profits have risen in 6 of the past 7 quarters, a definite positive for the economy.
Which brings us to holiday sales… According to Adobe Insights, on-line sales rose 16.8% on Cyber Monday and 17% on Black Friday, extraordinary growth rates. But online sales are still only about 10% of total sales so these growth rates are not unexpected. Results from the brick and mortar world, which still account for almost 90% of sales, were less clear, depending on who you read. Monday’s Wall Street Journal headline was “Black Friday Crowds Thin.” And according to ShopperTrak, store traffic was indeed down on Black Friday, but by less than 1% y/y. ShopperTrak also reported that for the whole weekend traffic was down 2% y/y. Conversely, the National Retail Federation (NRF) had predicted 164 million people would shop over the holiday weekend, but the actual results were 174 million. But then despite seeing more shoppers than expected, the NRF did not increase its previous forecast of 4% sales growth. The reports are mixed, but in the end we expect to see very modest growth in brick and mortar sales and very strong growth in on-line sales.
Despite tepid income growth and only modest spending growth, consumers are exuberant. Consumer confidence rose 3.3 points in November to 129.5, the highest in 17 years. The present situation component rose 1.9 to the highest level in almost 17 years, while the future expectations component gained 4.3, also a 17 year record.
Tax reform is barreling through the Senate, but even if it passes, which seems likely, the Senate version will have to be reconciled with the House version, which is really quite different. Getting the whole thing finished by Christmas will be a push. In either case, the reduction in corporate taxes would likely provide the most benefit to the economy, so it’s a puzzlement why the Senate wants to delay it for a year. Some see corporate tax cuts as an unfair “give-away” to corporations. However bringing profits back home for investment would create jobs and would be a “give-to” the economy. In addition, corporate taxes are largely passed on to consumers in the first place - a corporate tax cut could reduce this hidden tax. It’s true that corporations could use some of the savings for share buybacks, but it’s still likely the reforms will boost economic growth somewhat, although not as much as the advertised 4%. Other economists disagree that the tax cut will help.
But they don’t disagree that there is no such thing as a free lunch. It is estimated that the plan will add $1.5T to the federal debt over the next ten years, and this is undoubtedly a negative. But some perspective is needed; before the proposals, the Congressional Budget Office (CBO) forecasted that the gross debt would be $30.7 trillion in ten years, or 110% of GDP. Adding another $1.5 trillion would push it to $31.2 trillion or 115% of GDP. It’s the wrong way for sure, but it’s only an additional 5%. Also, the CBO is often wrong, and forecasting out 10 years is a fool’s errand, even if it’s necessary.
euler hermes roma Economic News: A picture good enough to raise our 2018 forecast | |
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