The Trump administration completed its first 100 days in office at the end of April, with stock market returns seemingly giving a nod of approval. Equity markets appeared to shrug off geopolitical issues as well, sailing relatively smoothly through the turbulence caused by European elections, a U.S. missile attack on Syria and ongoing tensions in North Korea.
The final revision to 2016 fourth quarter U.S. GDP was released in March and showed that growth slowed to a 2.1% annualized rate, after showing a marked acceleration in the third quarter of 2016. However, personal consumption remained surprisingly strong, as consumer and business confidence indicate a level of optimism not seen in 15 years. The optimism and enthusiasm around prospects for the new administration quickly succumbed to the realities of politics, as the first major attempt to reshape the U.S. government stumbled over the health care initiative. This setback has dampened expectations for extensive tax reform and additional stimulus programs. Nevertheless, there is still a large disparity between “soft” survey data, which reflects a high degree of optimistic sentiment about the future, and the “hard” data that reflects low to moderate economic growth.
U.S. GDP growth accelerated markedly between the first and second halves of 2016 and recent economic data suggests that growth will continue at a reasonable pace in the first half of this year. The Conference Board’s measure of consumer confidence hit a 15-year high in February, bolstered by expectations of favorable job and income prospects and suggesting that consumption growth will remain healthy. Optimism seems to be finally improving for businesses as well, with the National Federation of Independent Business (NFIB) Index of Small Business Optimism posting a 13-year high in January. The global economy appears to also be on the mend, with indicators for both manufacturing and non-manufacturing rising in the Eurozone and Japan over recent months.
The year began on a note much like it ended in December, with encouraging economic data and the financial markets optimistic over the prospects for a more pro-business environment in Washington. Commodity markets seem to be enjoying some support and the global economy also appears to be on the mend; a much more encouraging backdrop than was in place a year ago.
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