Recently, the Commerce Department revised their estimates for the growth of Gross Domestic Product to 3%. As of August 16, the Atlanta Fed’s “GDP Now” model, which tracks and estimates real GDP growth, estimates 3rd quarter growth will expand at a 3.8% annualized rate. Many analysts project that as much as 1% of the growth may be coming from businesses restocking from low inventories. But even with that consideration, there is no doubt that economic growth is expanding much faster than the Congressional Budget Office predictions, from the beginning of the year, of 1.9% growth. Yesterday (8/30/17) President Trump touted the latest figures declaring “we are really on our way.” Trump said that if the economy can sustain growth at a 3% rate, it would create 12 million new jobs and $10 Trillion in new economic activity over the next decade.
Excluding this inventory boost, Brian Wesbury, the Chief Economist of First Trust, reports that their models have real GDP growing at a 2.4% annual rate in Q3, while the Atlanta Fed model has it at 2.8%. According to Wesbury, better economic growth means better profit growth, and better profit growth will help push stocks higher. Their 2017 end-of-year forecast of 2,700 for the S&P 500 and 23,500 for the Dow Jones Industrial Average remains in place. Mark Zandi, the Chief Economist at Moody’s Analytics, is forecasting growth of 2.1%. Although this is less optimistic than Wesbury, both forecasts project significant growth when compared to the growth rate of 1.5% for 2016. According to Zandi, “for the first time since the Great Recession ended in mid-2009, the economy is not facing any significant headwinds.”
At AOG, we are still concerned that the “tail winds” of the “Trump Bump” will not be sustainable unless the administration is able to deliver on at least two of the four policy goals that have fueled the stock market since the election. The President and his administration are well on their way to reducing what they consider to be “unnecessary regulation”, both through legislative and executive actions. However, that still leaves health care reform (don’t be surprised if that comes back later in the year), tax reform, and a major infrastructure program. Will bipartisanship make an appearance in 2017 with enough votes to provide aid following the damage from Hurricane Harvey? Stay tuned…
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