U.S. Short-Term Economic Outlook. Wall Street markets registered gains the day immediately following the U.S. presidential election, signaling that investors remain optimistic about the future of the economy.
The Dow Jones closed 1.4 percent higher, and both Nasdaq and the S&P 500 were up 1.1 percent. The dollar hit its highest value in nearly four months against the Japanese yen after falling 4 percent in overnight trading. Additionally, ten-year Treasury yields rose above 2 percent, which was the highest level since January.
Amid the initial sanguine reaction, many economists and market analysts expect more uncertainty to enter the market in the next few months. The overall economic impact of the presidential election remains uncertain. Initial reactions were positive but fluctuated in the days following the election. The global economy is somewhat in a holding pattern to see what will happen. In the immediate term, economists expect only one rather than three interest rate hikes in 2017. Merrill Lynch’s GDP growth expectations for the first half of next year dropped from 2.1 percent to 1.8 percent.
Despite the uncertainty of markets in the short- and medium-term, the U.S. economy entered the early winter on a positive note. The initial GDP growth estimate from the Bureau of Economic Analysis for the third quarter of 2016 registered at 2.9 percent—the highest quarter of growth this year and 0.4 points above the expected 2.5-percent increase. The acceleration in real GDP stemmed from higher private inventory investment, more exports, and higher federal government spending. These increases were partly offset by a smaller increase in personal consumption expenditures and a larger increase in imports.
The increase in housing prices and values also bodes well for the U.S. economy. Housing prices expanded in October, and experts expressed optimism about future growth, according to an economic survey by reserve banks in the October Beige Book report. Ongoing housing price increases reflect greater confidence in the market and indicate continued progress toward reaching pre-recession price levels.
U.S. Long-Term Outlook. Regardless of the political climate and events, there are several metrics that suggest a potentially stronger 2017. First, wage growth is beginning to accelerate. Wage growth decelerated between mid-2014 and early 2016, but now it is turning and increasing faster than inflation. Greater wage growth represents an increase in spending power, which may translate to higher consumer spending. On a related note, employment is increasing along with wages.
Second, retail sales are up. As of July 2016, retail sales were 0.9 percent higher than they were a year prior. Annual growth increased to 3.4 percent in September 2016. Since consumer spending has been the primary driver of GDP growth over the past several quarters, increased retail sales indicate continued GDP growth.
Third, manufacturing and purchasing have been growing at a relatively constant pace over the past few months and are expected to continue growing. This move toward positive growth is a welcome shift from the constriction of the manufacturing industry that resulted from the oil glut.
There are many factors that could affect the trajectory of the U.S. economy, and while there is still much uncertainty regarding the economy, the overall outlook for 2017 remains healthy.