As we move into the second half of 2017, we find ourselves in a familiar place. Once again, as in 2016, we saw a weak first quarter and rising concerns that the economy was rolling over. And once again, we have seen stronger data in the second quarter, which should lead to another solid year for the economy and markets. Employment continues to grow, both consumers and businesses remain confident, and markets have responded by moving up around the world, even hitting new highs here in the U.S. The fundamentals remain sound from both an economic and a market standpoint, and at this point, it seems likely the rest of the year will show continued growth and market appreciation.
There are risks, of course, but they are more political than economic. Even the real political risks, however, have not been as damaging as feared. Both the French and British elections, for example, failed to derail markets, and the political turbulence here in the U.S. has not prevented markets from reaching new highs. Strong economic fundamentals have allowed us to sail through the political storms, and this should continue to be the case.
The big picture, then, is one of continued improvement through the rest of 2017. The economy should continue to grow, perhaps a bit faster than it did in 2016. Corporate revenue and earnings have increased by more than most analysts expected, and that trend is likely to continue as well. Add in high levels of consumer and business confidence, and financial markets are also likely to continue to rise.
The U.S. economy is still growing, but more slowly
The best way to analyze the U.S. economy is to go back to basics. Gross domestic product comprises consumer spending, business investment, government spending, and the net result of trade. We need to consider each separately and I look forward to elaborating on each in the weeks to follow.