My take: Here’s what you need to know about the economy—today

January 2/9, 2017: Volume 31, Number 15
By Steven Feldman

Happy New Year. Here’s to a happy, healthy and prosperous 2017 for us all.

I’ll begin the year much in the same manner as I did last year by highlighting some of the key points from noted economist Alan Beaulieu’s presentation at the NAFCD event this past fall. While there were too many for this space, I’ll attempt to include the most pertinent.

1. While the U.S. is the world’s largest economy accounting for 24.5% of global GDP, most millennials—not to mention 53% of the U.S. population—believe China is larger. China comprises only 15% of the world’s GDP.
2. The next 14 years of your working career will be wonderful. Pour money into your business because you will gain market share and grow.
3. GDP growth on a quarterly basis has turned up. Manufacturing is on the way up. More consumers are making more money. Thus, we should all be planning for a bigger 2017.
4. We cannot grow as fast as we did in the past because the denominator is so big. The economy after World War II was $2.4 trillion. Now it is $16 trillion. The growth forecast is 3.5% on a GDP basis. That is a very good year. We are at record levels of GDP. We have record high employment, wages, retail sales and job openings.
5. The U.S. is the second largest oil and gas producer in the world. We have 300 years of consumption in the ground. We are on our way to not needing the Middle East. Millennials will grow up in a world where the Middle East will become irrelevant. We will not need to be in the Persian Gulf. So, defense spending will go down. That spending can be reallocated to other things. That is an economic strength that cannot be minimized.
6. We have reduced our CO2 output dramatically. We have already absorbed this cost. Other nations have not absorbed the cost of cleaning up the air and water. As they have to go through what we have done over the last few decades, their costs will have to go up. Manufacturing will go up; labor will go up in China. So, that competitive position will erode.
7. When we get to be 57, we become the most expensive demographic group in the world. When we get into our 80s, we continue to drain all kinds of resources we cannot afford. The only thing that takes care of this is the death of baby boomers. They are the budget killer.
8. Our national debt is a problem around the world. There is no hope of correcting this. I only see it going up. It is unavoidable and we cannot default, or we can’t borrow the next day.
9. In 2015, 56% of the federal budget was spent on healthcare, social security, etc. In 14 years this will be 69% of the federal budget, and 25% of the budget will be spent on interest payments. So we are on the road to financial ruin because of entitlement programs and interest.
10. Banks are lending. They have more money than they know what to do with. We have cash sitting in reserves the size of the national economy of Canada. As they lend that money, we will see a multiplier effect and the economy improves. Borrowing will increase as interest rates go up. That means more money coming into the economy.
11. In this election cycle a record number of businesses are moving into the U.S. Jobs are being created. The more jobs created, the more taxes paid. We are finding we have more people coming here than us going there.
12. Employment has never been higher and wages are near record highs. Manufacturing is the fourth largest employer in the country. Job openings are at a 15-year high. We can’t fill all the jobs that are available.
13. U.S. building materials and supplies dealers posted retail sales 7.1% higher over year-ago levels. You will sell more product in 2017. We are projecting a 4.8% rate of growth. You need to advertise and market.
14. Commercial construction is getting better. There is a record amount of spending on a quarterly basis on office buildings construction. Hospital construction is also moving up. State and local government construction? They’re not buying.
15. Interest rates are going up. That sends the signal that we no longer need the feeding tube. We are healed. As they raise rates, people buy things today knowing prices will be going up. People around the world have been waiting for the hike in rates. That signals things are getting better.