Yahoo Says US Economy Could Turn Around in 2017 or Crash

Markets have rallied since November on the expectation that Trump and the Republicans will quickly enact a growth-oriented economic agenda—including tax cuts, regulatory relief, and targeted economic stimulus projects.

It’s clear that the right people want it to happen, at least. Whether they will get what they want is a slightly different question, Yahoo Finance commented.

The reform effort could fall apart for various reasons. The Senate majority is narrow enough that just a handful of GOP defectors will be able to stop any given bill, assuming Democrats stay united in opposition.

Republicans should be on guard against hubris, as well. The decision last week to kick off the year by softening ethics rules was a terrible idea. They accomplished nothing and energized an opposition that was otherwise on its heels.

There is always the chance that some “bolt from the blue” could change everything. An international crisis, a large bank failure, terror attacks—any one of a long list of unforeseeable events could conceivably derail this train.

Assuming no major surprises, the tax and regulation changes can boost GDP growth in the final half of 2017 toward the 2.5% range. That will be a small improvement from this year and could set the table for a bigger feast in 2018 and beyond.

Much also depends on how the Federal Reserve responds, as well as on any changes in its composition.

But here again, if the Republicans get all timid or can’t cooperate and end up settling for the usual tinkering around the edges with tax reform and healthcare reform; and if they are stymied by an entrenched bureaucracy that doesn’t want to see its regulatory powers dismembered, then no one can expect to get the economic boost that everybody is anticipating.

If there is reasonable progress on healthcare reform along with regulatory reforms, the stock market could end the year higher, even from today’s elevated valuations. Also, earnings could really be improving by the third and fourth quarter that is if the reforms are actually put into place in time.

If the reforms get hung up or are watered down and not really effective, this market could tumble out of bed so fast that it will make your head spin.

The US is manufacturing more materials and goods than ever. Manufacturing is increasing at a fairly serious rate, well over 2% a year. The problem is manufacturing jobs are not. The real challenge the US and the rest of the developed world face is how to create new jobs in the face of this automation challenge.