The Economy: Holiday Spending Strongest in Years

1. US Economy is Booming, Rest of World Follows Suit
2. US Retail Sales Stronger Than Expected in November
3. President Trump Keeps Promise to Reduce Regulation
4. Controversial GOP Tax Reform Set to Pass This Week


There’s so much to talk about in this week before Christmas it’s hard to know where to start. The economy continues to gain momentum. Last week, the Atlanta Fed revised its GDPNow forecast from 2.9% to 3.2% for the 4Q. If accurate, that will mark our third consecutive quarter of 3+% growth in the economy. Consumer confidence remains very strong.

Last week’s retail sales report for November came in considerably stronger than pre-report estimates. For the 12 months ended November, retail sales rose an impressive 5.8%, the largest increase since 2011. Meanwhile, US stocks continue hitting record highs week after week. This is all good news going into the holidays.

It now looks very likely that the Republicans in Congress will pass their tax reform package this week. That will lower the federal corporate tax rate from 35% to 21%, along with rate reductions for most Americans, which should further boost the economy next year. I’ll talk more about that below.

To the surprise of no one, Janet Yellen & Company raised the Fed Funds rate another quarter-point to 1.25-1.50% and maintained its intention of raising it three more times next year – based on its improving assessment of the US economy.

US Economy is Booming, Rest of World Follows Suit

The US economy continues to gain momentum and as noted above, the Atlanta Fed now believes we will experience our third consecutive quarter of 3+% growth in GDP for the 4Q. After starting the year with disappointing growth of only 1.2% (annual rate) in the 1Q, the economy accelerated sharply in the 2Q to 3.1% followed by 3.3% in the 3Q.

If GDP indeed comes in at 3.2% for the 4Q, 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 4Q growth could be closer to 4%. If so, that means growth for this year could be close to 3%, and next year 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.