ITR Economics

2017 Fourth Quarter Economic Report - Summary

The US economy, as measured by Real GDP, is growing. US Real GDP was up 2.2% in the second quarter of 2017. Accelerating growth in the Manufacturing sector (up 1.0% year over year) and the Mining sector (up 1.6%) are contributing to the accelerating growth in US Industrial Production (up 0.8%). However, US Electric and Gas Utilities Production is contracting (down 0.6%) and will decline during the next two quarters. Year-over-year rise in Utilities Production will return by early 2018. 

North America Robotics New Orders during the 12 months through March (units, most recent data) was up 15.6% compared to the yearago level. The ITR Checking Points™ system indicates that Phase B, Accelerating Growth, will extend through at least the next quarter. Expanding New Orders signal rise in the automation industry and bode well for AHTD members. US Machinery Production New Orders transitioned to an accelerating growth trend in July (1.5% above the year-ago level). New Orders will rise through mid-2018 before transitioning to a declining trend, which will extend through 2019. This will present a downside risk to AHTD members through the same time period. 

US consumers are finding themselves in an optimal economic situation consisting of rising real wages, low unemployment, low inflation, low interest rates, a rising stock market, and relatively-low commodity prices. US Overall Wages are up 2.6%, 0.3 percentage points above the five-year average of 2.3%. Inflation is rising but is low relative to historical norms. Prices at the pump remain low. S&P 500 price rise is creating additional wealth for Americans who own equities. Despite a recent tick down, general rise in US Savings as a Percentage of Disposable Income, a 24-month leading indicator to US Industrial Production, bodes well for consumers’ ability to drive the US economy during at least the next year and a half. A strong US consumer is good news for further growth within the US housing market. 

Be prepared to compete aggressively for skilled labor in a tight labor market as US Private Sector Employment sectors, such as Restaurants, Hotel, Transportation and Moving Materials and Retail, rise through at least the first late 2018. Ensure you offer competitive monetary benefits as well as non-monetary benefits, such as flexible work hours, that help retain workers. Finally, examine your pricing plan for the remainder of 2017 and through 2018 to account for rising energy prices and rising labor costs. Be prepared for Phase C, Slowing Growth, to take hold in the second half of 2018—especially in consumer-facing markets as interest rates are expected to rise. 

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