RV PRO

January '18

Issue link: https://read.uberflip.com/i/917814

Contents of this Issue

Navigation

Page 126 of 138

118 • RV PRO • January 2018 rv-pro.com B U S I N E S S Business Confidence C o n f i d e n c e a m o n g c o n s u m e r s and businesses is yet another driver of growth. Here the news is good. "Consumer confidence remains high," Hoyt says. "It jumped following the presidential election, and the tapering back down that many of us anticipated has not occurred." Businesspeople, for their part, seem confident as well, and seem willing to invest. Moody's expects business invest- ment to increase by 4.5 percent in 2018, up from an expected 4.07 percent figure for 2017. "Nonresidential investment has improved following the swoon caused by the collapse in oil prices," Koropeckyj says. "Equipment outlays and intellec- tual property products are both growing strongly. And accelerated wage growth could spur firms to spend more on equip- ment and technologies that reduce the need for workers." And then there is the business-friendly environment of the nation's capital. "A favorable business climate, partic- ularly a relaxation in various regulations, could boost investment spending more than expected," Koropeckyj said. Adding fuel to this fire is an upswing in corporate profits, which are expected to rise by 4.5 percent in 2018, a good increase over the 4.07 percent figure expected when 2017 numbers are finally tallied. "Low costs and sturdy revenue growth have bolstered profits," Koropeckyj says. While both conditions are expected to extend over the coming months, stronger profits in 2018 depend upon the delivery of lower corporate taxes. Businesses looking for expansion cap- ital are in a favorable position. "Banks are eager to lend," says Walter Simson, principal of Chatham, N.J.- based Ventor Consulting. "And the bor- rower has a lot of power when it comes to pricing and conditions of the loan." Looming Risks Favorable as the forecast is, uncertain- ties in Washington might spark prob- lems. "We have built some corporate tax cuts into our forecast," Hoyt says. "If they don't happen, our forecast is too strong. And if personal tax cuts are insti- tuted, our forecast is too weak. We are also assuming there is some increase in federal infrastructure spending." The picture could further darken if President Trump institutes protectionist measures promised during the campaign. "The president has an agenda which is somewhat protectionist and I think we need the exact opposite," says John Man- zella, a speaker on global business and economics, and CEO of World Trade Center Buffalo Niagara, an interna- tional business development organiza- tion based in Western New York. "We actually need more agreements for free trade, which is extremely beneficial to the U.S. economy." At least there has been no recent talk about a border adjustment tax, notes Manzella. "That would result in many lost jobs. While the president has focused on the trade deficit, we need to realize that more than half of imports represent interme- diate goods used in the production of U.S. products. This makes our goods more competitive around the world. Imports also reduce prices and stretch the consumer dollar." Housing Struggles Housing activity, a key driver of eco- nomic growth and consumer spending, is bringing up the rear. "Housing starts remain disappointing," says Moody's Koropeckyj. Moody's expects 2017 starts to increase by 5.17 percent, to 1.24 million, when numbers are finally tallied. That's lower than the expected 1.64 million, and represents a rate of increase noticeably below the 6.34 per- cent increase clocked in 2016. The culprit? Neither demand (which is robust) nor credit availability (which is strong). Instead, a tight labor market has lim- ited the capacity for new construction. Furthermore, it's expected that a good portion of available workers will be siphoned off for the reconstruction of buildings damaged by hurricanes Harvey and Irma. Put it all together and it means a substantial backlog in the construction of single-family homes and apartments. Despite the downside risk of labor shortages, Moody's forecasts a robust 26.11 percent increase in 2018 housing starts. "The combination of increased housing permits and reconstruction in the aftermath of Harvey and Irma will keep demand for housing starts at a hot burn," Koropeckyj says. Financial Risks Finally, business owners should keep a watchful eye on the health of the banking industry. "I continue to worry about the strength of the financial system," says Ventor Consulting's Simson. "When the value of assets such as the stock market and real estate goes up, that usually means there is too much easy money in the system." The nature of the nation's increasing debt loads also worries Simson. "Student loans, credit card debt, and longer-term auto loans are contin- ually increasing," he says. "So are deriv- ative-backed CDs, which carry high rates of return and carry higher risk than many people realize. Finally, we are also seeing the bundling of loans that got us into trouble in 2008." The end result? "Maybe some lenders have too many high-risk loans on their books," says Simson. "If they cannot collect, the whole banking system will again be at risk." Running Start In the early months of 2018, some key indicators may offer clues to the year's economic trajectory. First, suggests Hoyt, keep an eye on what is happening in Washington. "Will there be a program of fiscal stimulus? If so, that will bolster the economic environment." He also sug- gests staying alert to reports of wage increases, which would stimulate con- sumer spending.

Articles in this issue

Links on this page

view archives of RV PRO - January '18