The U.S. economy will continue to post steady growth well into 2018, said two analysts this morning in Las Vegas, with gains in employment and the housing market giving American consumers more spending power.
But how robustly the economy grows will hinge partly on a major wild card: Whether President Donald Trump can stabilize as a leader.
“What is President Trump’s leadership style going to be?” City National Rochdale Professionals executive Tom Galvin said this morning at City National Bank’s Mid-Year Economic Forecast and Marketing Update. “Can he work with Congress in a collaborative, proactive manner? Can he work with our international partners in a collaborative, proactive manner?
“Is he Ronald Reagan? Or is he going to be known as the Tweeting President?”
Galvin said Trump’s pro-business agenda of reducing taxes and eliminating governmental regulations had created a well of confidence among business operators. But whether that confidence can be unleashed and turn into economic growth depends on whether Trump can stay on task and spearhead changes in tax codes, the health care system, trade deals, Dodd-Frank banking regulations and so forth.
“Now, we’re at the point of the scene from the “Jerry Maguire” movie: show me the money,” Galvn said. “We really need Congress and the president to come together to get something done.”
The longer the wait for Washington to act, Galvin said, the more confidence could wane.
That said, Galvin and fellow City National Rochdale executive Gregory Kaplan said key economic indicators were positive despite the uncertainty in Washington.
Kaplan said the nation was in its third-longest stretch of recovery since World War II, although the current bounce-back was the slowest of those three. With unemployment at 4.3 percent — even less than the low of 4.4 percent during the run-up to the 2008 recession — and household net worth at a healthy level, Kaplan said, the company was anticipating domestic growth of 2 percent to 2.5 percent into 2018 with low inflation.
“The good news is that the growth is slow and steady, so it can go longer,” he said. “The bad is that it hasn’t been that exciting.”
Among other positive signs, delinquencies for home loans are down, household savings are up and the global economic outlook calls for modest growth.
Although the analysts said the Federal Reserve may increase the interest rate as many as five times through the end of 2018, they said investors shouldn’t be overly concerned.
“So long as the Fed is raising rates, that’s usually a good sign that economic activity is healthy, so they’re trying to stay ahead of the inflation curve,” Galvin said.
Both Galvin and Kaplan said the housing market would benefit by changes in Dodd-Frank to loosen restrictions on mortgage borrowing. Dodd-Frank was enacted to restrict the reckless loaning and investment practices that led to the 2008 recession, but the House voted this month to gut it, saying it had given regulators too much control. Critics of the GOP-driven effort to eliminate Dodd-Frank say it could lead to a repeat of the recession.
But asked how Dodd-Frank could be revised without reopening the door to irresponsible banking practices, Galvin cited a Treasury Department report issued this week that recommended some reforms but didn’t go as far as the House’s action. Among Treasury’s suggestions was to loosen regulations on mid-sized banks.
“The industry has been restrained too much,” he said. “Banks are willing to make the loan, but it’s just onerous. There’s just so much paperwork.”
The event, held at Red Rock Country Club, drew about 50 guests.