Receive news, updates and special deals by Joining AOA's Online Newsletter. Click now to sign up!

U.S. Economy is Booming, Rest of World Follows Suit – by Gary D. Halbert

Posted on 01. Feb, 2018 by in all

Facebook Twitter Email Linkedin Digg

The U.S. economy continues to gain momentum. After starting the year with a disappointing growth of only 1.2% (annual rate) in the first quarter, the economy accelerated sharply in the second quarter to 3.1% followed by 3.3% in the third quarter.

If GDP indeed comes in at 3.2% for the fourth quarter, that will mean growth for the year will have been a solid 2.7% compared to only 1.5% for all of 2016. Several forecasters I follow, including the New York Fed, believe that fourth quarter growth could be closer to 4%. If so, that means growth for this year could be close to 3%, and 2018 has the potential to be even better barring any negative surprises.

Most important, this is not just an American growth story. For the first time in years, the world is experiencing synchronized growth which is why Goldman Sachs and Barclays, among others, have recently predicted 4% global growth in 2018. The entire world benefits when our economy is healthy, and the strength overseas is reinforcing the US resurgence.

U.S. Retail and Food Service Sales

The boost includes in-store and online spending at traditional retailers such as Wal-Mart and Nordstrom Inc., which clocked the largest year-over-year November sales increase in seven years. Home-furnishing stores, electronics and appliance stores also logged strong sales numbers, despite competition from online-shopping websites, which also posted robust gains.

“It [was an] impressive start to the holiday season and probably the best in the last few years,” said Jack Kleinhenz, chief economist at the National Retail Federation, a group that represents retail stores. “When you put the pieces together – job and wage gains, modest inflation, healthy balance sheets and elevated consumer confidence – there’s an improved willingness to spend.”

The bottom line is the data continues to reinforce the fact that the U.S. economy is gaining momentum, and much of the world is following our trend.

President Trump Keeps Promise to Reduce Regulation

People argue whether President Trump should get some or any of the credit for the economic improvement, but the business climate has no doubt changed on his watch. Corporate earnings have risen further this year, and corporate behavior has changed as measured by greater capital investment. Numerous financial writers, including some who lean left, have recently admitted that Trump’s commitment to deregulation has been a significant factor.

To put that in perspective, in President Obama’s final year in office the Federal Register – which contains new and proposed rules and regulations – swelled to 95,894 pages, according to the Competitive Enterprise Institute (CEI). This was the highest level in its history and 19% higher than the previous year’s 80,260 pages.

By comparison, the CEI reported in October that the Trump administration had slashed the Federal Register page count by a whopping 32% by the end of September. The administration has repealed hundreds of Obama-era regulations, and delayed or halted progress on many more regulations in the pipeline. It took former President Ronald Reagan several years to cut that many pages of regulations.

President Trump

For too many years, many U.S. businesses have seen mergers and acquisitions – or moving corporate headquarters out of the country for more attractive tax havens – as almost the only path to success. When a firm can’t achieve growth organically, it must acquire it. And when it faces a combined federal, state and local income tax rate of nearly 40% in America, it will often merge with a competitor in Ireland, for example. Moving a company’s headquarters to Dublin means paying only 12.5% in taxes.

Yet a lot has changed this year in anticipation of tax reform. Companies from Broadcom to Boeing have announced they’ll move overseas jobs back to the U.S. American companies hold nearly $3 trillion overseas and may soon be able to bring that money home without punitive taxation.

Meanwhile, businesses have begun to open up their purse strings, which is why things like commercial airline activity are rising substantially as executives seek new opportunities. Companies are once again looking to expand and focus on growth.

Tax Relief

In addition to the significant reduction in regulation, the promise of tax relief is raising expectations for growth as the U.S. prepares to reduce the industrialized world’s highest corporate tax rate to 21%. Although the new rate is not as low as the original 15%, Donald Trump called for on the campaign trail, it will make U.S. corporations more competitive around the world. For “pass-through” businesses, which employ more than half of private-sector workers, the tax cut will have a significant effect.

By now, I doubt that anyone reading this hasn’t made up their mind on whether they are for or against slashing the corporate tax rate. Thanks to the media whining that it’s only a tax cut for “the rich,” less than one-third of Americans favor the corporate tax rate cut according to recent polls. I maintain, however, that it will be good for the economy, jobs and wages.

On the individual side, much of the tax debate has unfortunately not been about economic growth but about trying to ensure that the “rich” don’t benefit from tax reform – even though the top 10% of earners paid nearly 71% of federal income taxes in 2016. Also, the top 20% spend more than the bottom 60%, and it’s worth remembering that consumer spending is two-thirds of the economy. I know, I know – I’m preaching to the choir. I’ll leave it there for now.

 

Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at www.halbertwealth.com