This Year's Fuel for Economic Growth

There are several factors expected to help fuel the economy through 2018. The first is government intervention through fiscal policy.

Congress passed the Tax Cuts and Jobs Act (TCJA) at the end of 2017. This legislation offers a plethora of tax breaks for corporate and individual filers alike. With it, Congress is looking for two results: an increase in wages and business expansion to create more jobs; and an increase in consumer spending.

Another factor is monetary policy, which is set by the Federal Open Market Committee (FOMC) of the Federal Reserve Board. This committee adjusts U.S. monetary policy based on the direction of two economic factors: inflation and unemployment. If the prescribed fiscal policy works, inflation is expected to rise further and unemployment sink lower. These actions will provide the impetus for the FOMC to increase interest rates which will, in turn, put a damper on growth.

This just goes to show you the precarious nature of government tools and the importance of using them in concert to help keep the economy at an even keel.

However, the private sector of the economy also provides fuel for growth. Several money managers have offered their insights into some of the most influential components for 2018. For example, wealth manager Merrill Lynch sees the following trends as contributors to growth this year:

• Artificial intelligence – robotics
• Genomics – “gene editing”
• Geopolitics – China, Russia
• Global trade – Europe, Japan
• Hurricane-related rebuilding

Another growth theme with diverse implications is that of demographics. For example, in recent years the millennial generation has surpassed baby boomers as the largest generation and is poised to make its mark in several unique ways.

First of all, this demographic is expected to drive the residential real estate market for the foreseeable future. While it got off to a late start during the recession years, Morgan Stanley projects that millennials will largely account for the 1.3 million households expected to be established each year over the next five years. This statistic is 30 percent higher than the long-term average increase.

Also note that the tail end of the millennial generation is currently still in high school. The recent controversy over school shootings and the uprising of teens as activists for gun control laws could have long-term repercussions on gun manufacturing, sales and legislation, not to mention a greater focus on the needs of the education community.

Baby boomers, however, are not yet done influencing economic growth. Now entering retirement and their later years, this demographic is expected to drive healthcare in general and the pharmaceutical industry specifically. Spending on prescription drugs is projected to increase by at least 4 percent to 7 percent a year through 2021. Investment opportunities abound not just for drug manufacturing companies but also for distribution channels such as pharmacies, supermarkets and major retailers.

Boomers also are driving much of the infrastructure boom in many major metropolitan centers. As they sell off their homes to family-oriented millennials and move out of the suburbs, many cities are investing to revitalize urban neighborhoods from roads and sewer lines to data centers and storage facilities to support e-commerce. These efforts will help accommodate a more affordable and manageable lifestyle for retirees.

According to Prudential Financial, there is currently a migration trend comprised of 60 million to 70 million people a year moving to cities worldwide – a pace of urbanization that is unprecedented in history.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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