Manufacturing gained strength across the country. According to the U.S. Bureau of Labor Statistics, 12.4 million Americans are working in manufacturing, an increase of 25,000 jobs from 2016, and nearly 1 million from 2010. Compared with 1980, however, nearly 6 million jobs have been lost. Many jobs in manufacturing are being created because positions are being “reshored,” coming back to the U.S. primarily from China, where wages have been rising steadily. In addition, automotive jobs have been “reshored” from Germany, Japan and Mexico over the last six years. The place of robots in the manufacturing equation has garnered attention as the price for robots has declined and more companies become automated. Still, projections are that for 2018, manufacturing and manufacturing hiring continue to gain momentum.
Employment continues to expand, with the unemployment rate ticking down to 4.1 percent, suggesting a tightening labor market. The previous lowest unemployment rate was 3.9 percent at the end of 2000. The hiring index for The National Federation of Independent Business reached an all-time high at the end of 2017. Among college graduates, the jobless rate is 2.1 percent, while the jobless rate for those adults who haven’t graduated from high school is moving lower from 6.5 percent in September to 5.2 percent in November 2017.
Wage gains, while modest in 2017, and up 2.5 percent in November compared with a year earlier, are poised to move higher as competition for workers heats up and the economy continues to expand. According to the Business Roundtable, an industry group composed of the largest U.S. corporations, wages in the fourth quarter of 2017 were their largest costs.
Stronger growth internationally, and still highly accommodative central bank policies, have helped foster a synchronized global recovery. The prospects for tax reform, along with a scaling back of regulations, have helped spur corporate and consumer confidence. As a result, mergers and acquisitions should continue to gain pace in 2018, as nearly every sector appears ripe for a deal. And the deals are getting larger in each sector, ranging from the $69 billion CVS deal with Aetna, to the deal announcement between Disney and most of Fox. Then there’s Broadcom’s $105 billion bid for Qualcomm, a takeover attempt which will continue into 2018.
President Donald Trump has declared that plans for infrastructure spending will be announced in January as he continues to build out the growth agenda touted during the presidential campaign. Industrials, materials, industrial commodities and the subsectors associated with infrastructure spending should be the primary beneficiaries of any infrastructure program introduced in 2018.
The Federal Reserve’s Path Towards Normalization And Beyond
With fiscal stimulus being introduced, concerns are mounting that the economy could expand at a significantly more rapid pace, pushing long dormant inflationary pressures higher. For the Federal Reserve, it could mean more rate hikes in 2018 than is currently being discounted by the market.
In her last press conference in mid-December, outgoing Fed Chair Janet Yellen, following the fifth rate hike since the financial crisis, said, “At the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on …unsustainable buildup of debt.” She added that “the global economy is doing well. We’re in a synchronized expansion. This is the first time in many years we’ve seen this.”
Although updated projections for rate hikes by the Federal Open Market Committee (FOMC) include three moves in 2018 and two in 2019, in reality much depends on the economic and inflationary effects of tax reform and possible increase of infrastructure spending over the next few years. Also, the composition of the FOMC may prove to be more hawkish than the dovish tilt of the current board.
As The Wall Street Journal editorial page observed recently, “The challenge for [new Fed Chair Jerome Powell] and the Fed will come if their forecasts are wrong and they are underestimating the growth effects of tax reform, deregulation and the rest of the Trump-Congress policy mix.”