Currently there are many positive indicators regarding economic activity that should bode well for the home improvement industry heading into 2018. Let’s take a look…
Consumer Confidence Survey at 17-year High The Conference Board’s Consumer Confidence Index for November was at 129.5 which is the fifth consecutive monthly increase and is at a 17-year high. A part of that data indicated that consumer’s optimism about the short term outlook and the job market both improved in November compared to October. The University of Michigan also releases a Consumer Sentiment Survey which showed a decline in November to 98.5 from October’s reading of 100.7. It should be noted however that the October reading was the highest since January 2004.
…GDP is Strong and the Labor Market Is Bouncing Back From the Hurricanes… The most recent estimate for third quarter GDP came in at 3.3%, up from 3.1% in the second quarter. The 3.3% increase is the highest since the third quarter of 2014. The current GDPNow estimate for the fourth quarter from the Atlanta Federal Reserve is at 3.2%. If GDP for Q4 comes in at 3.0% or higher it will be the first time since the Great Recession that growth was over 3.0% for three consecutive quarters.
The two hurricanes in September did put a damper on new job creation in the month as only 121,000 jobs were created. That was the lowest in over five years. October did improve somewhat to 162,000 but there was a very nice bounce back in November to 228,000. The unemployment rate in November was 4.1%, which is holding at the lowest mark in 17 years. Despite apparently tight labor markets and low unemployment rates over the past several years one of the surprising factors is that wage growth has been disappointing at less than 3.0%. Perhaps the lack of wage growth is behind some of the slight economic malaise that still seems to be hanging over the country despite good GDP and employment growth.
…Potential Tax Cuts Could Add Fuel To the Fire
As has been widely reported a potential tax reform plan could very well be passed by the Senate and House then signed into law by President Trump by the end of the year. The plan does include tax cuts in both the corporate and personal tax rates and would be effective beginning in 2018. The potential tax rate reduction could be additional stimulus for the economy in 2018 could very well put additional money in consumer’s pockets thus helping the home improvement industry.
…Continued Growth in 2018 Likely to Drive Interest Rates Higher
It is widely expected that the Fed will increase interest rates in December by 0.25% following two interest rate increases earlier in the year. Economists are predicting that the Fed will raise rates three to four times in 2018. As a result of the continued interest rate increases expect that rates consumers pay for a variety of loans including mortgages, autos, credit cards and other types of consumer credit to continue to rise.