Retail Observer

RETAILOBSERVER.COM APRIL 2018 48 A merica is nine years into a recovery, we have had 95 consecutive months of job growth, the Dow had a historic run to over 26,000 and unemployment has fallen from 10.2% in November of 2009 to 4.1% today. America's history is remarkable in many ways but it is our resilience, diversity and determination that has served this country so well. We have all had a part in creating a dynamic economy over the past 240 years and our economic leadership will continue to provide wealth and prosperity to each of us. What can we expect over the next quarter and beyond? After a decline in December, Consumer Confidence (as measured by the Conference Board) beat expectations and rose to 125.4 in January from 123.1 the prior month. Confident consumers tend to spend more cash on goods and services. The economy created 200,000 jobs in January according to the BLS, this is good news and demonstrates the underlying strength of the current business cycle. The U3 unemployment number was unchanged at 4.1% for the fourth straight month, however, the labor force participation rate, the percentage of Americans who are actively seeking work, has been stuck at 62.7% for nearly seven years even though we have had terrific job growth and it remains a concern. Wages have grown slowly and you might ask why? While we don't have a definitive answer, economists speculate that with so many people sitting out waiting for work, demand for workers has not yet exceeded supply. We had an unexpected slowdown in GDP growth in the final quarter of 2017, the economy grew at an annualized rate of 2.6% for Q4 and at 2.3% for the full year. It was a disappointment after Q2 and Q3 both expanded at over 3% and so many of the other leading economic indicators were rising. The prognosis for 2018 is still positive with most of the financial institutions predicting growth in the 2.6% range. The Dow had a magical year in 2017, growing 25% and outperforming other asset classes. I am always asked at conventions about this year's growth expectations and I tell audiences this, while I am still bullish on the market in 2018, bonds and not stocks have been the best predictor of the last two major market declines. When the spread in yield between the two-year and 10-year bond narrows, it usually is a harbinger of slowing growth. The spread declined 125 basis points at year end 2017 and it is an indicator of stock market correction. The retail business should be robust the next quarter— American workers will have increased disposable income as a result of tax cuts and those dollars will find their way into home improvement projects. While we have seen increases in consumer spending every year since 2010, there are some negative indicators on the horizon. In December, the U.S. personal savings rate fell to 2.4% of disposable income that is now commensurate with where it was prior to the 2008 recession. Consumers also increased borrowing by $20.5 billion dollars in November of last year with a big increase in the use of credit cards and auto loans. This is very worrisome because as interest rates rise, the cost of interest on this debt could restrict spending in 2018. The bottom line is simple, the U.S. economy will remain strong, global GDP is picking up for the first time since the 2008 recession, tax cuts are a natural stimulus and the financial mood in America is very positive. Momentum in the world of finance is a powerful force, I believe we will have a very robust Q1 which will give us a strong momentum into Q2. So keep looking to the horizon; there are some dark clouds forming on the edges but none large enough to block the sun. AMERICA STRONG— A NATION SUCCEEDING Joe Higgins Economic Viewpoint RO Joe Higgins—with more than 44 years in the appliance industry—speaks at conventions, seminars and sales meetings across America. His work includes presentations on the United States economy, leadership, creating a high performance culture, healthy teams, and customer service. Visit www.q4qwithjoe.com.

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