The health of the U.S. economy
remains a pocket of strength for
global growth despite a slow start
to the year and the looming presence of
higher market volatility. The economy
delivered a weaker than expected first
quarter, as measured by gross domestic
product (GDP) growth, due in part to a dip in
personal consumption. However, we believe
it is poised to recover and show strength for
the remainder of the year. The U.S. Tax and
Jobs Act signed into law by President Donald
Trump in late 2017 and a $1.3 trillion stimulus
bill passed in March of this year are likely to
contribute to that strength.
We maintain our initial U.S. GDP
growth forecast of 2.9% for 2018.
Overall business optimism remains
strong despite concern over the Trump
administration’s position on several issues,
most notably the direction of U.S. trade
policy. According to the Small Business
Optimism Index, small business owners
currently are more optimistic than any
other time in the index’s 45 year history.
Many small business owners reported
record profits, and indicated they plan to
use this profit growth to make capital
investments and add headcount.1 (Chart 1)
Chart 1: Small business optimism soars
* Source: “Small Business Economic Trends,” National Federation of Independent Business, May
2018. Index reading is seasonally adjusted, based on baseline of 1986=100, and shows rising and/
or falling rates of optimism.
Large company leaders also are confident,
albeit slightly less than their small business
counterparts. After reaching a record high
in the first quarter of 2018, the CEO
Economic Outlook Index — a composite
of corporate executives’ sales projections,
capital spending forecasts and hiring plans
over the next six months — had a modest
decline in second quarter, with trade
uncertainty a key reason.2 (Chart 2)
Chart 2: Large companies confidence slips over trade
Source: “CEO Economic Outlook Survey 2Q 2018.” Business Roundtable/Haver Analytics, 06/05/2018.
Data from CEO Economic Outlook Survey Diffusion Index; readings of 50 and above indicate
optimism about business expansion.
We believe U.S. GDP growth remains on
pace with our initial 2018 forecast of 2.9%.
While inflation has picked up slightly, it is
still in line with the U.S. Federal Reserve’s
(Fed) target of a 2% annual rate.
A strong labor market also is contributing
to the upbeat U.S. economic picture. The
unemployment rate fell to 3.8% in May, the
lowest level in 18 years. While improving,
wage gains this year have been modest
given the low level of unemployment.
We believe wage growth will continue
to improve in the second half of 2018.
1Source: “Small Business Economic Trends,” National Federation
of Independent Business, May 2018.
2Source: “CEO Economic Outlook Survey 2Q 2018,” Business
Roundtable/Haver Analytics, April 2018.
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The opinions expressed are those of Ivy Investment Management Company, are current through June 2018 and are subject to change at any time based on market and other current conditions.
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