Retail Observer

RETAILOBSERVER.COM JULY 2018 48 A re we at the end of a nine-year bull market? Has the current business cycle reached its breaking point? In the first six months of 2018, these have been the two most commonly asked questions I get at conventions and business meetings. The answers are not simple—we do know that we are in the second- longest economic expansion in the 242 year history of the United States, but predicting and defining the points of an economic cycle is a fool's game. Is there growth in our future or is this the start of a downturn? At the time of this writing, there is not consensus among economists, but as we look out over the next two years there are troubling signs that should concern Americans. I am quoting now from the Wells Fargo investment arm when they wrote, "The U.S. economy is entering the late stage of expansion in what has been an extended business cycle." What we have seen in the first quarter is GDP growth at an anemic 2.3%, an alarming rise in personal credit, the Fed raising interest rates, and higher gas prices pulling disposable income from consumers. We have also witnessed the narrowing of the yield curve, the difference between the yield on a 10-year bond and the two-year bond moving closer, which has been a strong predictor of economic declines. I talked about the yield curve in my January article and the impact is has had on the stock market has been quite dramatic. Amid all the speculation, the answer I am still giving to those questions, is this: the U.S. economy is very strong with many positives among the economic indicators we use to determine its future course. Below are my thoughts. As a result of very robust labor market and tax reform, consumer confidence had a nice bounce in the month of April. After a decline in March, the index hit 128.7, even though we had a stock market correction, the threat of trade wars, and rising budget deficits. It's a sign that Americans are still feeling good about their current financial situation. Retail sales increased 0.3% in April, down from a 0.8% gain in March. However, spending was up by 0.4% on big ticket items like appliances, television, and furniture. Consumers have indicated that they are still in a spending mood but are going to be judicious in their purchases. The housing market holds great news for home sellers, as prices rose in April: prices were up 6.7% from their July 2006 peak and we have had 70 months of continuously rising home values. The number-one market in the country was Seattle, up 12.7% so far this year. Rising home equity normally translates to home remodeling and that will continue to prop up our industry Unemployment reached 3.9%— the lowest it has been since 2000 — and we have had a record 106 consecutive months of job gains. This is an indicator of momentum in the economy and is usually a harbinger of strength in the coming quarters. The bottom line to all of this is gross domestic product, which is defined as the amount of goods and services produced in one year in America. First quarter GDP growth at 2.3% was disappointing when compared to the previous quarters. With strong job growth, deficit creating tax cuts and high confidence, economists were surprised at such a weak number but not worried—GDP has traditionally been relatively languorous in the first quarter for the past few years. I believe we will see growth in Q2 and Q3. For 2018, my direction is that our economy is strong, the second half will look much like the first half. So keep promoting, attend the buy fairs, look to your group or vendors for help, and be confident that our economic expansion still has legs. THE UNITED STATE ECONOMY AS A PARADOX Risks abound, but growth remains Joe Higgins Economic Viewpoint RO Joe Higgins—with more than 44 years in the appliance industry—speaks at conventions, seminars and sales meetings across America. His work includes presentations on the United States economy, leadership, creating a high performance culture, healthy teams, and customer service. Visit www.q4qwithjoe.com.

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