Economic Outlook: Generally Positive Trends

By at 19 April, 2018, 10:25 am

by Raymond J. Keating-

The next look at a major economic measure comes on Friday, April 27, when we get the initial estimate on first quarter GDP growth. In the meantime, however, a few tidbits of valuable information have been released this week.

Consumer Spending Up

First, we received a taste of what the consumer is up to when the Census Bureau reported that “U.S. retail and food services sales for March 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $494.6 billion, an increase of 0.6 percent … from the previous month, and 4.5 percent … above March 2017.” That’s a welcome step up from three month-to-month declines covering December to February.

In addition, looking at the first quarter of 2018 versus the first quarter of last year, retail and food services sales grew by 4.1 percent.

Industrial Production Up

Second, the Federal Reserve offered its latest take on industrial production. In March, industrial production – the output of the nation’s industrial sectors, i.e., manufacturing, mining and utilities – increased by 0.5 percent, which followed on growth of 1.0 percent in February. And compared to a year earlier, industrial production was up by a strong 4.3 percent.

As for the manufacturing sector, production only increased by 0.1 percent, but that did come after a strong 1.5 percent increase in February. Also, over the past year – comparing March 2018 to March 2017 – manufacturing output increased by a respectable 3.0 percent.

Fed’s Outlook on the Economy – Pretty Good

Third, and finally, the Federal Reserve’s Beige Book continued to serve up an assessment classifying economic growth as “modest to moderate” during March and early April.

On key fronts, the Fed noted:

“Consumer spending rose in most regions, with gains noted for nonauto retail sales and tourism, but mixed results for vehicle sales. Manufacturing activity grew moderately, and demand for nonfinancial services was mostly solid. Residential construction and real estate activity expanded further, although low home inventories continued to constrain sales in several Districts. Loan demand increased, and commercial real estate activity and construction improved since the last report. Transportation services activity expanded in over half of the reporting Districts, buoyed by increases in port traffic and/or air, rail and/or trucking shipments. Agricultural conditions were little changed or worsened on net, in part due to persistent drought conditions.”

Matters of concern were mainly focused on trade and possible labor shortages.

On the labor front, it was noted in the Beige Book:

“Widespread employment growth continued, with most Districts characterizing growth as modest to moderate. Labor markets across the country remained tight, restraining job gains in some regions. Contacts continued to note difficulty finding qualified candidates across a broad array of industries and skill levels. Reports of labor shortages over the reporting period were most often cited in high-skill positions, including engineering, information technology, and health care, as well as in construction and transportation. Businesses were responding to labor shortages in a variety of ways, from raising pay to enhancing training to increasing their use of overtime and/or automation, among other strategies.”

If economic growth accelerates, as expected, one would expect part of the resulting rise in labor demands would be met with an increase in the labor force participation rate, moving it back to more traditional levels. However, that’s unlikely to be sufficient, particularly when meeting certain labor needs. That reality points back to the immigration issue, and the need for reforms that allow for responses to labor demands from businesses and, ultimately, consumers.

Trade Could Derail Gains and Momentum

Finally, on trade, two points are worth highlighting:

● “Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs.”

● “Prices increased across all Districts, generally at a moderate pace. There were widespread reports that steel prices rose, sometimes dramatically, due to the new tariff.”

This is exactly what one would expect to see when trade policy moves in or threatens to move in a protectionist direction, including tariffs and/or quotas. As noted in my recent congressional testimony on “The State of Trade and Small Business” before the House Committee on Small Business:

“Just as there are clear positives derived from free trade, there are clear negatives from protectionist measures that increase governmental costs and barriers to trade. Consumers, of course, are confronted by fewer choices and higher costs due to the fact that protectionism shields companies from competition, which reduces efficiency, diminishes quality, and limits innovation. For good measure, protectionism not only limits opportunities in the international marketplace for U.S. entrepreneurs, businesses and workers as other nations inevitably retaliate, as we are seeing now, but U.S. businesses and workers pay more for whatever product is being shielded from competition thanks to protectionist policies.”

The U.S. has moved in the right direction in key policy areas – namely, in terms of business tax reform and providing some regulatory relief – but gains from these moves could be undermined by the imposition and threats of protectionist trade measures.  The consistent pro-growth, pro-small business policy direction is reduced governmental costs and barriers via tax relief, regulatory relief and free trade.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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