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CEO’s Corner: Economic Growth Will Remain Steady in 2018


Don Ganguly of HomeUnion Reviews Passive-Income Investing and the Economy 

As the headwinds that created uncertainty in 2017 dissipate, I expect 2018 to be a year of steady growth. The new tax plan, representing the largest overhaul of America’s tax system in three decades, provides individuals and corporations a clearer picture of liabilities in 2018, and should boost the overall economy. Lower taxes will also enable businesses to pass through a greater share of capital to investors, who will then allocate some of those proceeds into passive-income investing vehicles, such as single-family rentals (SFRs).

In the broader global economy, ongoing talks between Britain and the European Union appear to indicate a softer exit than some feared, thus avoiding a disruption in either entity’s economic growth. Finally, rumblings from the U.S. government warning of a more protectionary trade stance with China have failed to materialize.

The U.S. economy is poised for another year of growth, albeit at a much steadier pace than we experienced in 2017. Corporations are sitting on large sums of cash, which has done little to spur spending. Unemployment remains very low, and the labor force has struggled to realign to meet the demand from employers in critical growth areas, including technology and life sciences. Recent job growth, meanwhile, has been disproportionately represented in low-paying service sectors, limiting wage growth. For the first time in years, new technology is no longer driving quantum increases in productivity. Collectively, there is little evidence that the U.S. economy will shift into a higher gear.

The pace of GDP growth in the New Year should support higher corporate earnings, which should lift the stock market. The biggest question in 2018 will be how lower taxes on corporations will impact economic growth. Supporters of the tax overhaul argue that lower taxes will generate sufficient expansion to justify the cuts. Detractors, on the other hand, believe lower taxes will result in a ballooning budget deficit. The midterm elections will serve as a referendum on the current administration and tax reform, and could signal a return of gridlock to Washington, D.C. Regardless, the U.S. economy appears to be in a healthy position heading into a new year since the current expansionary cycle begain.

 

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