This article was published in the New Haven Register on August 19, 2018
We’re well past the halfway point of 2018, and the U.S. economy continues to surge ahead, as predicted at the start of the year.
The major stock indexes were all in positive territory for the year to date as of Aug. 1, despite market volatility. The Dow Jones average was up 3.74 percent, the Nasdaq Composite was up 11.65, and the S&P 500 was up 6.36. Those numbers were much higher for the one-year period, Aug. 1, 2017 to Aug. 1, 2018, with the Dow up 18 percent, the Nasdaq up 21 percent and the S&P 500 up nearly 16 percent.
Unemployment is at an 18-year low and companies are having a hard time finding workers. According to the U.S. Bureau of Labor Statistics, wages and salaries rose 2.9 percent between June 2017 and June 2018. That’s a lower rate of growth than in previous economic expansions, which is helping keep inflation under control.
The manufacturing index of the Institute for Supply Management stood at 58.1 percent in July. Any reading over 55 percent indicates “very strong growth” in the manufacturing sector.
Retail sales growth reached a six-year high in the second quarter, according to the U.S. Commerce Department, with average annual growth hitting 6.6 percent in June.
Gross domestic product (GDP), a measure of productivity, soared to 4.1 percent in the second quarter, up from 2.2 percent in the first quarter, according to the U.S. Bureau of Economic Analysis.
Fueled by the Trump Administration’s tax cuts and regulation cuts, the U.S. economy is in the midst of a historic expansion. Some economists worry that Trump’s tough stand on trade could slow growth. Let’s take a look at what the prognosticators say:
U.S. Federal Reserve. On Aug. 1 the Fed called the current economy “strong,” a change from the more moderate term “solid” used by the Fed in April. In mid-July Fed Chairman Jerome Powell said he believes inflation is likely to remain at an ideal rate of around 2 percent a year for the next several years. And in June the Fed raised its forecast for U.S. economic growth in 2018, the median real GDP rate, to 2.8 percent (from 2.7 percent).
The Conference Board. Noting that the U.S. economy “has continued to gather strength” since its Jan. 8 outlook report, The Conference Board increased its forecast from 2.9 percent to 3.1 percent growth in both 2018 and 2019.
The World Bank. In June, the World Bank reiterated its previous assessment that the world economy will accelerate to a 3.1 percent growth rate in 2018, which includes a 2.2 percent growth forecast for advanced economies and a 4.5 percent forecast for emerging markets.
It’s rare to see the economy firing on all cylinders so strongly, but it’s important to keep things in context: The bull market is nearly a decade old and due for a correction. Avoid making important financial and investing decisions based on positive – or negative – economic news. Instead, continue to follow your overall financial plan and practice diversification and rebalancing disciplines.