Sunday, December 18, 2016

Stocks Get Trump Bounce, But Not The Real Economy

Consumer, businesses haven’t changed their behavior early on.


By Jeffry Bartash
MarketWatch
December 19, 2016

Stock prices soared and soared after Donald Trump's election, but the real economy?

U.S. stocks have repeatedly sailed to record highs in anticipation of a more business-friendly Trump White House backed by a Republican Congress. But there’s no evidence so far that businesses and consumers have acted with similar glee.

It’s no shock. Major reports leading up to Christmas, including this week’s look at investment and consumer spending, reflect snapshots of the economy in November as the election was taking place.

And even though surveys show a more buoyant attitude among consumers and executives, it’ll take at least several months to learn if that translates into more investing, hiring and spending.

“Is this just a temporary euphoria brought on by the election and the promise of meaningful change, the holidays, or a stock market at record highs? Only time will tell,” noted Scott Anderson, chief economist of Bank of the West.

Certainly there’s plenty of room for improvement. Take business spending.

Although orders for long-lasting products are forecast to rise in November, a key measure included in the durable-good report shows investment has fallen 4.3% in the past 12 months. Indeed, investment has been weaker in the past two years than anytime since the Great Recession.

President-elect Donald Trump has vowed to cut corporate taxes, reduce regulations and ratchet up government spending on large public-works projects. Those promises have excited the corporate world and it could spur more investment in the future, but executives are likely to wait for more details before they take the plunge.

The same is probably true of consumers. Households don’t spend like they used to, and it’s unrealistic to expect them to alter their behavior until they see how the new president’s approach affects their paychecks or ability to find work.

Still, households have been doing their part. Consumers have propped up the economy even as the two other key pegs, business investment and trade, lag well behind. The government is expected to report consumer spending rose a solid 0.3% in November, helped by gradually rising wages.

That leaves government. Yet Washington just can’t inject tens of billions of dollars into the economy even under a new administration. Congress rarely moves quickly and it won’t be until late spring or early summer that the spigots start to open.

Once the spigots open, though, federal spending could juice the economy for some time to come.

“The U.S. is poised to spend big in coming years while almost no one else is in the same boat,” said Doug Porter, chief economist of BMO Financial Group.

If Trump gets his way, the current economic expansion that’s now 90 months old, and is the fourth longest ever, might go on for at least several more years. That could bring it within reach of the record 120-month expansion that occurred from 1991 to 2001.

The bigger challenge, though, is not the length of the expansion but its speed.

The U.S. hasn’t grown 3% annually since 2005, an 11-year stretch that is the longest in modern history. That’s thin gruel for Americans used to an economy that whose historic growth rate is 3.3%. And one of the chief reasons Trump pulled off his surprise upset.


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