Markets and Economy

Key Economic Trends for 2017

Commercial Banking’s Head Economist, Jim Glassman, recently outlined a full report on the seven key economic trends to watch for in 2017. Those trends, including rising consumer spending and lower unemployment, are illustrated below.
March 17, 2017
 

2017 US Economic Outlook

The US economic outlook for 2017 is positive overall. Trends indicate more consumer spending, a continued rise in the federal funds rate and a drop in unemployment.

CONSUMER OPTIMISM CLIMBS

With positive trends like steady job growth and record-high levels of net worth relative to income, consumers are entering 2017 with the wind at their backs. The high share of gross domestic product (GDP) comprised of consumer spending is a testament to the bright backdrop.

US Nominal Consumer Spending Share

Ratio to Nominal GDP
0.55 0.60 0.65 0.70 1947 1957 1967 1977 1987 1997 2007 2017 Share of consumer spending dropped in the 1950s Since the 1970s the share of US consumer spending has gradually increased
A chart showing the change in the US Nominal Consumer Spending Share Ratio to Nominal GDP from 1947 to 2017. The Share of consumer spending dropped in the 1950s; since the 1970s the share of US consumer spending has gradually increased.

Sources: Haver Analytics; US Department of Commerce

Consumer spending is rising to reach a record high share of GDP

Net Worth and Personal Saving Rate

A chart showing US consumers’ annual net worth as a percentage of disposable personal income, along with the corresponding personal saving rate each year, from 2004 through 2016. Both increased from 2006 through 2012, and after dropping in 2014, are now again on the rise.
0 200 400 600 800 Jan. 2016 Jan. 2014 Jan. 2012 Jan. 2010 Jan. 2008 Jan. 2006 Jan. 2004 0% 5% 10% Personal Saving Rate, Seasonally Adjusted Net Worth as Percentage of Disposable Personal Income, Not Seasonally Adjusted 581.8 642.9 575.1 525 537 628.9 634.8 4.7 3.6 4.7 5.6 7.1 5.5 6.0

Source: Federal Reserve

21%

increase in househould net worth from January 2010 to January 2016

Fed Funds Rate Expected to Rise

While forecasts diverge over the next couple years, both the futures market and Federal Open Market Committee expect similar rates in the long term.

Forecasting the Federal Funds Rate

A chart showing Federal Open Market Committee and market projections. FOMC and market forecasts diverge over the next couple years; In the longer term similar rates are expected.
2016 2017 2018 2019 Longer Term FOMC Projections 0 1% 2% 3% Market Projections FOMC and market forecasts diverge over the next couple years In the longer term similar rates are expected

Sources: Federal Reserve; Bloomberg

DROP IN UNEMPLOYMENT SEES YOUNG ADULTS RETURN TO LABOR FORCE

Improvements in the job market have led to decreased jobless claims and have encouraged young adults who gave up looking for jobs to return to the labor force. This has caused a rapid decrease in the pool of unemployed people not included in the official unemployment rate.

Weekly Jobless Claims

Yearly Average
A chart showing the Weekly Jobless Claims Yearly Average from 2007 to 2016. In 2007 it was 320,750. In 2010 it was 459,000. In 2013 it was 343,481. In 2016 it was 262,774.
2007 2010 2013 2016 320,750 459,000 262,774 343,481 0 100,000 200,000 300,000 400,000 500,000

Source: US Department of Labor

40%

of workforce dropouts aged 20-45 have returned since 2007

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