The economic data continues to show a very healthy U.S. economy.
Retail sales (how much you’re spending at stores) in the last three months of 2017 were the best since 2010. Spending for the entire quarter may be slightly inflated due to post-hurricane spending in the wake of Hurricanes Harvey and Irma, but Simply Money Advisors is optimistic about continued strong consumer spending for 2018.
Once paycheck tax withholdings change in February and you start seeing an increase in your take-home pay, it's not unrealistic to expect you, the consumer, to keep spending at your current rate.
Up until now, consumers like you have been dipping into your savings to sustain spending levels as evidenced by the 10-year low savings rate of 2.9%. The tax cut should help you maintain your spending level while hopefully allowing you to build up your savings.
Economists are worried about inflation rising, which may force the Federal Reserve (Fed), our nation’s central bank, to raise short-term interest rates to counteract this. Last week's inflation data showed “Core CPI” (consumer prices without food and energy prices) increased to 1.8% from 1.7%.
These higher prices were due to the price of goods rising, while the cost of services has remained stable. Simply Money Advisors is not worried about broad inflation going much higher because the cost of inputs for goods is not increasing. This is one of the reasons we believe the Fed will raise short-term interest rates only two or three times in 2018.
Currently, the U.S. economy is very healthy, and this should lead to stronger corporate profits. Earnings season is starting to pick up now, and we expect profits to continue to rise. This matters to you and affects your investments because stock prices and earnings have historically moved together.
In other words, rising corporate profits have resulted in rising stock prices.
The Simply Money Point
Simply Money Advisors believes that the growing economy and lower corporate taxes will translate into higher corporate profits throughout all of 2018. This should be good news for your investment mix.