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Economic Outlook (Spring '17)

Date: 2/1/2017

Author: Russ Colbert

During the past we have mentioned the sluggish economy driven by the new technology in a number of areas like smartphones, energy, 3-D printing, etc. We finally have more to improve the economy for 2017. We are looking for real growth to pick up in the GDP, closer to 2.5% and higher next year. This should improve from faster growth in home building, improvement of growth in inventories and more business investment. It looks like the new administration and Congress are going to push for cuts in corporate tax rates. We should also see cuts in regulation and less emphasis on government subsidies toward politically favored and non-efficient industries. This should spur in more companies to raise more investment capital and use their assets more efficiently.

There is a large amount of excess monetary liquidity in the system causing concern for inflation. It will continue to rise as the economy improves going forward. The recent quarter point hike by the Federal Reserve is an effort to curb the rise in inflation. The threat of higher inflation should be taken seriously. We may see two or more of these rate hikes before the end of the year in order to keep inflation from rising to fast. Any policy changes that help stimulate real economic growth, like tax cuts, reducing regulations, cutting spending, or replacing Obamacare, can assist in holding down inflation over the next few years. In other words real growth can hold off inflation. The good news is that rates are currently very low.

The unemployment rate should fall this year. Healthy job growth will continue and companies should improve their output of growth from the productivity. We believe there will be better job opportunities with higher wages going forward as the White House focuses on improvement in this area, and mores U.S. companies and international companies open factories and offices in the U.S.

We feel this year will continue to be good for the stock market. Profits have been held artificially low since 2014 due to the energy industry absorbing lower oil prices. Now with energy prices more stable it should assist economic profits going forward for our economy instead of slowing it down. We think the U.S. is at a crossroads. The chance to curb spending, cut taxes, freer healthcare market, more energy production, and roll back regulations would be a huge stimulation for our economy and the stock market going forward. I believe if we continue to stay optimistic and stay invested, the stock market will continue to be a good one this year.

If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.

Russ Colbert
Senior Portfolio Manager

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