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Little Change in The General Economy for 2018, Unless. . .

Southwest 2018 Outlook: U.S. economy likely to resemble 2017, but uncertainties remain in place.

 The general economy of 2018 is poised to be somewhat similar to 2017. However, this article was written at a very delicate time in late 2017 with tax reform uncertain, a new farm bill in the works, and trade issues uncertain.

 The economy is exhibiting healthy signs that will continue into the first part of next year.  Economic growth will likely continue in the 2 percent to 3 percent range.  Unemployment is likely to remain relatively low for those looking for jobs, likely in the 4 percent to 4.5 percent range. We have had an incredible run with low to no inflation.  While it is ticking up a bit, it is likely to remain in the 2 percent range. Trade is somewhat stable, but the trade deficit has worsened. With a strong dollar expected, that will dampen US exports somewhat and further increase the trade deficit.

 The Federal budget deficit and debt remain high, tempered by economic growth. The Federal Debt as a percentage of Gross Domestic Product (a measure of economic growth) is at its highest since WWII, and will likely increase over the next few years.

 Consumer spending, the engine of the economy, was down in 2017, and is likely to increase in 2018, but probably not much above 2016 levels. Government spending, another key factor in economic growth, is holding relatively steady and is not likely to provide much of a boost to the economy in 2018. Business investment, another important economic growth factor, has recovered from a 2016 slump and is likely to increase or stabilize.

 That’s the economy on automatic, so to speak. Big changes from tax reform or trade could change projections, but it is unclear how soon. Congressional tax proposals as of this writing call for lower tax rates for most Americans, probably in the 0.9 percent of GDP range. In spite of the rhetoric, scientific review of historical data shows that lower rates do not improve economic growth. In fact, GDP has trended down with lower rates for top income earners, and the Federal Debt has increased. The trend in income tax revenue as a percentage of GDP has declined over the past 60 years, while growth has also trended down. The US, again in spite of political spin, is among the lowest taxed countries in the world. 

 Net Farm Income (NFI) is slowly recovering. It will likely be stable to slightly up for 2018.  As a bridge to the trade article in this section and to suggest that Agricultural Exports are a key part of NFI, the graph below is shown. Correlation is not causation, but there is no doubt that exports have become an important part of the demand picture for agricultural goods and their price changes. The President has indicated some support for bilateral trade agreements with the attempt to improve beef exports to China.  Producers are betting that regulatory cuts will improve economic growth and profits, but scientific analysis suggests this is uncertain.

 

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