Looking Behind and Looking Ahead

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Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

In this article we’ll recap the events and news over the past month that mattered most to the economy and markets, your credit union, and your members. Then we’ll look ahead at the key upcoming events you need to know.

Behind us—The year closed out on a solid note through all sectors of the economy. Here are the highlights.

  • Nonfarm Payrolls averaged 172,000 monthly versus 183,000 in 2016, but this represented a strong showing given the tighten labor market. The unemployment rate was 4.1%, a 16-year low.
  • Consumer confidence remained near record levels.
  • Auto sales closed out the year with sales of 17.2 million. This is down from 17.56 million in 2016 but was still a strong pace and fourth best annual sales on record.
  • Housing starts hit an annualized pace to 1.3 million units, the best since 2007.
  • The Fed did as expected and raised the funds rate. Shorter-term rates continued to rise as traders expect the Fed to raise the funds rate again in March. Longer-term rates rose modestly after the passage of the tax bill, but still ended the year close to the same levels at the end of 2016.

Ahead for you—Stocks got off to a strong start in 2018 as optimism grows that the tax bill will provide fuel for business expansion. The tax cuts for individuals are not large enough for the middle class to make any significant difference. But a strong business climate in which employers are adding jobs and wages are rising should be enough to boost economic growth at least through the first half of 2018.  

  • Jan. 12—Consumer Price Index. Inflation data has replaced jobs data as the most important data to the bond market. A higher than expected number might lock in the new Fed to a rate increase in March.
  • Jan. 12—Retail Sales. This number will likely be more important to the stock market than the bond market as traders and analysts see if holiday sales lived up to the hype.
  • Jan. 19—Spending authorization bill expires. An extension is necessary to avoid a partial government shutdown.   
  • Jan. 31—Federal Open Market Committee meeting. This will be a non-event as no action will be taken. It will only be noted because this will be Janet Yellen’s last meeting as Fed Chair.
  • Feb. 2—Jobs report. Harsh winter weather might lower nonfarm payrolls, but that will be a short-term effect. Bond traders will be more interested in the wage component.

Bottom line—The economy performed well in 2017 and the trend should continue through the first part of 2018, if not far beyond. Auto lending should continue to be strong for credit unions, but credit unions should prepare for declining mortgage business and the refi market contracts and first mortgage market struggles due to the lack of supply of available homes.

Article by Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

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