Issue link: http://palletcentral.uberflip.com/i/801657
22 PalletCentral • January-February 2017 palletcentral.com hen I wrote the last economic update for PalletCentral in September 2016, the general assumption was that Hillary Clinton would win the election and overall economic policy would not change that much. The stunning victory by Donald Trump and the policies he is expected to pursue will create some dramatic changes in the overall business climate, particularly for labor laws, environmental rules and taxes. He has also made promises to be tougher on international deals and on immigration rules. At this time, it is difficult to know exactly what the actual changes might be, how quickly they will be implemented, and the extent to which the policy shift will affect overall economy for the next two years. Even so, I will discuss some potential implications for business. The Current Situation for the U.S. Economy Let's recap the starting point for the U.S. economy in early 2017, especially compared to Europe. Despite the rhetoric put forth during the election, the U.S. economy has been doing relatively well. Overall economic growth as measured by the Gross Domestic Product (GDP) was near 2% in late 2016. Consumer spending continued to grow at a respectable 2.9%. Steady job growth and modest wage gains have boosted the ability of consumers to spend. The unemployment rate last year fell below 5%, hitting 4.7% in December. This puts the unemployment rate back to where it was in 2007. Employment growth last year averaged 180,000 jobs per month. Although not spectacular, it was steady and boosted consumer confidence. But a falling unemployment rate has a drawback. Wage rates are beginning to rise faster. In December, wage growth was near 3%, significantly higher than the 2% reported earlier in the year. As the unemployment rates falls and job openings increase, it becomes more challenging to retain key employees. Overall economic growth was only 2% because of declines in business capital spending and no growth in State and Local (S&L) government spending. Given the rising revenue from retail sales and residential property taxes, S&L expenditures should move higher over the next two years. One other segment that held back growth last year: housing starts. Housing starts have been near the 1.2 million level since mid-2015. Housing starts have historically led and boosted the early stages of an economic recovery. That did not happen this time. But here is the good news. Since housing starts have been below the long-term trend demand for several years, the building pent-up demand will drive housing starts higher over the next few years, even if interest rates move higher. Inflation rates also remained moderate, below 2%. The stronger U.S. dollar and the slow growth in the rest of the world kept the prices of imported goods down. Key commodity prices also continued to fall last year as well. W A New Policy Era Begins Election Outcome Adds Uncertainty to Outlook ECONOMY By Lynn Michaelis