Investors, like you, are paying close attention to the economic impact from Hurricane Harvey. It’s too early to see any effect on the economic data, but with 50 inches of rain possible in some parts of Texas, operational disruptions near the heart of the oil and gas industry may mean higher prices at the gas pump and a possible increase in layoffs. Exxon Mobil operates the second largest oil refinery in the U.S. in the area affected by the hurricane and 15% of the nation’s oil is refined in this region. Any layoffs will be short-term in nature, as those jobs would quickly come back once the energy infrastructure is back online. We don’t expect a longer-term impact on the broad U.S. economy from Hurricane Harvey. With recent hurricanes, such as Sandy and Katrina, the nation’s Gross Domestic Product (GDP) did not see a long-term impact because of the rush to rebuild damaged areas.
The big economic event last week was the Federal Reserve's annual meeting in Jackson Hole, Wyoming. The Federal Reserve, our nation’s central bank, has historically used this meeting to unveil new economic ideas. However, this year's gathering can be summed up as "coordinated silence." There were no clues as to what the Federal Reserve or the ECB (European Central Bank) will do about short-term interest rates or bond purchases also known as quantitative easing. Because there was no new information, our view is the same. We expect the Federal Reserve to possibly raise short-term interest rates one more time this year in December if inflation data increases from its current low level of 1.5%. We also believe the Federal Reserve is on track to begin to slowly shrink its balance sheet (or reduce the bonds it owns) in September or October.
There was little economic data last week, but what was released was slightly disappointing with new and existing home sales coming in weaker than expected. This week's economic calendar is much more important with reports on the second estimate of Q2 GDP (expected to increase to 2.7% from 2.6%), personal income, personal spending, inflation, manufacturing, vehicle sales, and the job market. Economists expect the unemployment rate to remain at 4.3% and 180,000 new jobs to have been added in August. It's also expected that President Donald Trump will begin to campaign to the public for tax reform. While it's possible tax reform is passed this year, any positive economic impact will likely not be felt until 2018, at the earliest.
The Simply Money Point
Hurricane Harvey is obviously devastating from a humanitarian perspective, but any negative economic impact will not last long. Investors like you should focus on a growing economy and possible tax reform, as those will help support the investment part of your personalized financial plan.