US outlook: New year is off to a strong start - Wells Fargo

Analysts at Wells Fargo, expect that real GDP grew at a 2.2 percent pace during the fourth quarter and 2.2 percent for 2017 as a whole. According to them, the coming year should see stronger growth, with real GDP rising 2.8 percent.

Key Quotes: 

“The United States appears to have completed 2017 on a solid note, with holiday retail sales easily topping consensus expectations. Capital spending also finished the year on a solid note, although the most recent factory orders and shipments data pulled back a bit from their recent torrid pace. Home sales and housing starts also perked back up following some earlier distortions tied to the late summer hurricanes. We expect that real GDP grew at a 2.2 percent pace during the fourth quarter and 2.2 percent for 2017 as a whole. The coming year should see stronger growth, with real GDP rising 2.8 percent.”

“The recently enacted tax reform creates some potential upside risks for the economy in the near term. Lower tax rates will provide a much needed boost to take-home pay, which has lagged behind consumer spending in recent months. Business fixed investment may also a be touch stronger. We had expected tax reform in our forecast, however, so we only need to adjust for the time and some of the lastest specifics.”

“The new tax law is taking effect at a time when the economy, by most traditional measures, is at full employment. This is raising concerns that the Fed may need to hike interest rates a bit more aggressively than the three quarter-point hikes implied by its most recent Summary of Economic Projections. We do not share this concern. Improvement is only now reaching many areas, including large parts of the South and Midwest. There is scant evidence that inflation is about to break out to the upside. Overheating may yet be an issue but most likely not in 2018.”