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Not Quite Three Percent, but Close

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The U.S. economy grew at an annual rate of 2.6 percent during the fourth quarter of 2017. Consumer and business equipment spending were the largest drivers of activity. Personal consumption jumped 3.8 percent, the best pace in almost a year. Investment in equipment expanded at the fastest rate in three years, 11.4 percent. And, for the first time in three quarters, housing construction contributed positively to growth, adding 0.42 percent to GDP. On the negative side, a wider trade deficit and higher inventories kept the U.S. from topping three percent growth for the third time. The two more volatile categories subtracted 1.8 percent from the growth rate. The inflation component of GDP, core PCE, increased 1.9 percent, enough to keep the Federal Reserve on track for several interest rate moves this year. The economy grew 2.5 percent in 2017, a significant improvement over 1.8 percent growth in 2016.

Other Key Indicators this Week:

Trade Balance – The trade deficit widened to $71.6 billion in December. This is the widest gap since July 2008. Imports and exports expanded at about the same pace (2.5 percent and 2.7 percent, respectively), but the export expansion was not enough to close the gap. The strong dollar at the end of the year boosted imports by $209 billion, compared to an increase of $137 billion in exports.

Durable Goods – Orders for goods expected to last more than three years increased 2.9 percent, the largest jump in six months. The continued increase in orders suggests a strong demand for goods, which in turn bodes well for the manufacturing industry. Orders for core capital goods, which eliminates volatile defense and aircraft orders, unexpectedly declined 0.3 percent, but was revised from negative to positive in November. For all of 2017, core capital orders rose 5.8 percent, the bulk of which was for business equipment.

Home Sales – December home sales were not the best, to say the least. But the downturns were more of a correction from unusually strong activity in November than an absolute slowdown in activity. Existing home sales fell 3.6 percent, the largest drop in 10 months. The inventory of homes for sale declined 10.3 percent to the lowest level since recording data began in 1999. The sales of new homes fell 9.3 percent, following a 15 percent rise in November. The four major geographical regions of the country all posted declines in sales. The jump in November was likely due to impending tax law changes, which were passed in December.

Strategically for Credit Unions:

Short-term Treasury yields continue to rise, with the two-year note up 23 basis points this month. The Federal Reserve remains on track to increase rates two to three times this year. Yet, credit union share rates have changed little. A large majority of credit unions have seen little demand for higher rates from their members, while continuing to hold onto deposits. Unfortunately, the flattening yield curve is keeping loan rates low. The next FOMC meeting is scheduled for January 30-31. This will be Janet Yellen's last meeting as Fed Chair.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.