Business & Finance

Press Releases

Investors Bank National Economic Outlook

0a6fb48fd74ca4543948_1200x630bb.jpg
0a6fb48fd74ca4543948_1200x630bb.jpg

The economy barely got out of its way during the early part of the year.  Economic growth was less than 1%, which is modest even by this mediocre recovery’s standards.  But there were other factors that indicate business activity is not weakening.  Still, it look likes another year of less than stellar economic growth.

The details of the GDP report were mixed, which is surprising given the soft economy.  Household spending slowed, especially on big-ticket items.  After purchasing every motor vehicle that moved for two years, some easing was not a surprise.  Yet families purchased homes fostering strong residential construction.

Meanwhile, businesses decided that with tax cuts potentially coming, it was a good time to invest. Firms spent heavily on equipment, buildings, software and computers.  But just in case the household consumption slowdown continued, firms made sure they wouldn’t be caught with a lot of goods they couldn’t sell by reducing inventories sharply.  That was the major reason growth was so slow.  

Sign Up for E-News

If you just considered private domestic consumption and investment, the economy expanded by more than 2%.  

But even the modest expansion came with a price as the labor markets tightened further.  Job gains were solid, causing the unemployment rate, no matter how it is measured, to drop to its lowest level since 2007.  

Normally, a lack of slack in the labor markets would be considered to be good news.  It is, as long as it doesn’t create major problems for businesses.  However, wage gains are accelerating.  The increases have not risen to the point where businesses are being forced to raise prices significantly, but that could be coming. 

The building pressure on business costs makes it unclear how much longer inflation can remain at its current moderate pace.  Already, it has reached the Fed’s target rate of 2%.  Can it go higher?  Absolutely, for two major reasons:  Productivity is not strong and input costs are rising.

During the last decade, firms offset upturns in their costs by operating more efficiently.  That has not been happening.  The combination of weak productivity, rising wages, and increases in imported goods and producer costs is setting the stage for even higher inflation in the months ahead.

The prospect that consumer costs could accelerate is worrisome. The Federal Reserve has made it clear it wants to normalize rates.  Although the economy may not grow rapidly over the next year, it should expand enough to speed up the wage and goods inflation we already are seeing.  The Fed will make sure inflation doesn’t get too high by raising rates.

Looking forward, the economy should expand this year at a pace similar to what we have seen over the past five years – about 2¼%.  With tax cuts and spending increases not expected to pass Congress before the year’s end, the hoped-for fiscal stimulus is almost a year away.  Nevertheless, expect the unemployment rate to fall, wages to rise faster, and inflation to accelerate.  That means the Fed is likely to raise rates at least twice more this year.

By: Joel Naroff

TAP Into Another Town's News:

Sign Up for E-News

Madison

Madison Area YMCA Charity Golf Outing and Dinner Reception to Send More Kids than Ever to Summer Camp

June 22, 2018

The Madison Area YMCA’s 21st Annual Charity Golf Classic and “Camp for One, Camp for All” dinner reception held at Morris County Golf Club in Morristown will send more children to summer camp than ever before. Event proceeds exceeded $100,000.

Citi Global Markets was the presenting sponsor. Bank of America Merrill Lynch and Credit Suisse were tournament sponsors.

More ...

AtlantiCast

AtlantiCast Episode 17

On this week’s AtlantiCast, it’s National Men’s Health Month, so check out important health tips for you or the men in your life, learn about groundbreaking research into breast cancer treatment that could mean an end to chemotherapy for some patients, meet a local sports hero who’s living his baseball dreams thanks to Goryeb Children’s Hospital and much ...

Cool Ways to Save Money This Summer

As the summer temperatures rise, home cooling costs rise as well. But there are ways to help save money without sweating the heat:

To increase your cooling system’s efficiency by as much as 20%, get it checked out for summer.  A technician will clean the condenser, make sure you have the optimal amount of refrigerant, and ensure the airflow over the coil is ...