As Simply Money Advisors expected, the U.S. economy had weak, but positive, growth in the first three months of 2017. The 0.7% growth rate was the lowest since the first three months of 2016.
The main reason for the slow growth was that consumer spending (how much you’re spending) saw a very modest increase of 0.3%. On the positive side, business spending on large items (e.g. equipment and structures) was very strong. We expect economic growth to rebound with total growth for all of 2017 around 2%. The Trump administration would like to improve this economic growth rate, and one way it believes that can happen is through tax reform. Last week, the administration released a summary of what they would like accomplished, including a reduction of individual tax brackets from seven down to three (10%, 25%, and 35%), repealing the estate tax, doubling the standard deduction, repealing the Affordable Care Act tax, and lowering the corporate tax rate to 15%. It's likely that these proposals will face an uphill battle in Congress.
While economic growth slowed in the first three months of 2017, corporate profits surged. Of the nearly 60% of large companies reporting earnings so far, about 81% have reported better earnings than analysts expected with a year-over-year growth rate of 15.5% on average.
This week there are two big calendar events: the Federal Reserve, our nation’s central bank, will meet on Wednesday, May 3rd, then on Friday, May 5th, the April jobs number will be released. The Federal Reserve will likely leave interest rates unchanged. Wall Street will be looking for any clues as to when and how the Federal Reserve will next raise interest rates. Currently, there is a 68% chance of an interest rate hike by June. As for the jobs report, economists are expecting about 190,000 new jobs in April, and it’s also expected the unemployment rate will come in at 4.6%.
The Simply Money Point
At Simply Money Advisors, we believe the Federal Reserve will hike interest rates one or two times more (at most) this year because we expect the economy to improve from a weak first quarter. The strength in the job market should support increased spending from you (the consumer) and the overall economy.