Business growth signs remain in view during 2017
The start of any new year is an exciting time for business owners and entrepreneurs, as it offers the opportunity to look back at what went well (and didn’t go well) and to look forward at plans for the year ahead.
Unlike hindsight, foresight does not have the advantage of 20/20 vision and, as business owners know all too well, some factors are outside of their control. Nevertheless, given the economic conditions just two months into 2017 and predictions for the year ahead, most signs point to U.S. business owners having a good year — though there may be some hiccups along the way.
As Bank of the West’s Investment Insights 2017 Outlook explains in detail, economists are forecasting another year of positive domestic growth. For instance, our Bank of the West Economics Team is predicting real growth in the U.S. to be at 2.2% this year and ramping up into 2018 on the back of positive fiscal policy.
These growth predictions are partly due to the presidential administration’s promises of major infrastructure improvements – including a revitalization of U.S. roads, bridges, and airports. These improvements would mean more than just a smoother commute; they would represent a rotation from monetary policy to fiscal spending that, combined with planned tax cuts, could result in a prosperous year for the U.S. economy. Additionally, our team is of the view that the nation probably will continue its 2016 trend of low unemployment and rising home and asset prices, a boon for U.S. consumers, according to the outlook.
For U.S. business owners, these forecasts may mean several things:
- Bonds will remain a relatively safe investment for preservation of capital. Fears of inflation and rising equity markets have caused some investors to lose confidence in bonds. However, although inflation will more than likely rise above the Fed’s target for much of 2017, we would caution that it won’t move high enough to undermine fixed income profits. The Global Investment Management team is estimating that the 10-year Treasury will move to around 2.75% by the end of the year, given these inflation expectations. Additionally, the Global Investment Management team believes equity markets have overshot in the near term, and bonds remain a good, relatively safe place to invest capital.
- Budget for paying higher wages. If you have employees, be prepared to pay them more, because as the Bank of the West outlook notes, U.S. businesses will likely face pressures from increases in wages this year. Business owners may prepare for the potential increase by budgeting for it ahead of time.
- No big bumps in the road if your business depends on oil prices. If your profits are affected by oil prices in any way, such as by the price to deliver goods, there is good news and bad news. Oil most likely won’t see a breakout to the downside or upside, due in part to the inherent difficulties with OPEC agreements and the emergence of shale producers in the U.S., which will keep oil supplies in check as prices increase above break-even levels, according to the investment outlook.
- Be prepared for some hiccups if your business depends on trade. The potential for pro-growth and pro-U.S. competition policies have driven domestic equities up; but if the policies are put into effect, possible tariffs on imports paired with inflation of the dollar could help or hinder your business if it depends on imported or exported goods. Businesses likely saw the peak of globalization last year.
Although the future is never certain, U.S. entrepreneurs can position themselves for a successful year ahead by being aware of investment and economic trends’ potential impact to their business and then planning accordingly. As Winston Churchill reportedly said, “Let our advance worrying become advance thinking and planning.”
Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. Nothing in this post should be interpreted to state or imply that past results are an indication of future performance. This information is given without regard to the specific investment objectives, financial situations, or particular needs of any person. Investors should seek financial advice regarding the appropriateness of any securities or strategies discussed.