US Economy

The recent headlines and resulting sharp decline in the stock market has created a lot of anxiety in the short-run, but in the long-run markets are driven by fundamentals, primarily corporate earnings and economic growth. The latest data shows that fourth quarter GDP growth was revised up to 2.9% from an estimate of 2.7% and the Conference Board’s US Leading Indicators in February showed the annual growth rate rose 6.5% to 108.7. The Conference Board concluded: “The LEI points to robust economic growth throughout 2018.”

The US economy is in the third phase of one of the longest cyclical recoveries in history, but fiscal stimulus in the form of tax cuts, a deficit spending appropriations bill and planned infrastructure and military spending are fueling the continued expansion. The robust growth and full employment (jobless claims are lowest since 1973) should boost wages (up 1% in February), and drive commodity prices higher. A strong economy can support the Fed’s plan to “normalize” interest rates in a range around 3% to 3.5% on Fed Funds. (Fed Funds are now at 1.75 %.)