The economy in 2017? The trend is up, but not for everyone.
The new administration is taking over a growing economy, which is likely to continue to expand into next year.
The American flag flies above the Wall Street entrance to the New York Stock Exchange on Nov. 13, 2015. In the transition from one administration in Washington to another, some stocks rise and other stocks fall. That’s true on Wall Street, and for words and ideas as well.
Richard Drew/AP
There are good reasons for optimism about the United States economy in 2017: Growth is steady, inflation is low, and more people are working.
Businesses are so eager for workers that 2017 might be the year when wages finally start growing robustly. President-elect Donald Trump is promising steep business tax cuts and fewer regulations.
No wonder the stock market is flirting with 20,000 on the Dow stock index and consumer confidence in November hit its highest level since before the Great Recession. If Mr. Trump can avoid trade wars with other nations, the economy looks set to shine next year, giving the new administration time for its proposed tax cuts and infrastructure stimulus to have an effectin 2018 or 2019.
“There is a lot of momentum building up into next year,” says economist Chris Christopher Jr., director of US and global consumer economics at IHS Markit, a business analytics firm.
Gross domestic product (GDP), which measures the nation’s output of goods and services, will grow a respectable 2.3 percent in 2017, according to IHS Markit. That’s not the great growth that Trump predicted during the presidential campaign, but it does represent a healthy bump from the estimated 1.6 percent rise in 2016.
But a few clouds appear on the economic horizon.
One is the strong US dollar, which is good for consumers when they buy French perfume, but bad for US companies that export goods and services to countries with weakening currencies, such as Japan, China, and members of the European Union.
Another cloud is rising long-term interest rates, which will make it more expensive for businesses and consumers to borrow money, according to David Payne, an economist at Kiplinger, a personal-finance and business-forecasting website.
“Any improvement for the consumer will be balanced out by the higher value of the dollar,” Mr. Payne forecasts.
A third potential problem is a trade war. Last week, CNN reported that the incoming administration was floating the idea of using an executive order to impose tariffs of up to 10 percent on imported goods as a way to encourage manufacturing at home.
Such moves would spark fierce resistance from the business community as well as many in Congress. Worryingly, it could also trigger similar responses from trading partners, putting a further brake on international trade, which is already slowing.
The conundrum facing manufacturing is real. Despite a growing economy, manufacturing and mining industries didn’t see much improvement in employment last year, a sign that economic growth is not spreading equally. “If you’re in a bifurcated economy ... it’s not broadly growing across the board; it’s spotty,” Mr. Christopher says.
Economists expect the unemployment rate to stay low, around 4.5 percent, and the labor market to tighten in 2017, which means wages and salaries should continue to rise. Payne projects that they will grow 3 percent next year. This could entice some people back into the labor market. The nation continues to have an unusually large contingent of Americans who have stopped looking for work, economists say.
While the widespread tax cuts, regulation rollbacks, and infrastructure spending promised by the new administration are expected to add more juice to the economy – though it’s arguable whether the benefits will be widespread – that likely won’t happen until 2018 and 2019, experts expect.
This is because the proposed, massive tax reform – the biggest since Ronald Reagan’s in 1986 – and other economic policies will take time for the administration and US Congress to implement.
One tax policy expert, Steven Rosenthal, projects that the cut in the capital-gains tax, which taxes investment income such as stocks, bonds, and real estate, could come as soon as spring 2017. The last three times the maximum capital gains rate was cut (1981, 1997, and 2003), Mr. Rosenthal found, Congress pushed the discount into effect in May or June, in some cases months before a law was enacted.
The reason, he explains, is that Congress worries that Americans will hold onto their assets until the law takes effect, stalling the market.
“Hold your assets to sell after spring,” advises Rosenthal, senior fellow at the Urban Institute, a nonpartisan think tank. Come spring, some people could save 7 percentage points on their capital gains tax, CNBC calculates.