Conference Presentation, Panel, Fireside Chat
U.S. Overview: Big Markets, Big Politics
Milken InstitutePhilippa Thomas, Jonathan Blair, Ross DeVol, Tony Fratto, Steve Krouskos, William Lee, Trevor Custle, John Jones
- U.S. economic growth is expected to recover and accelerate in the current year, with GDP potentially reaching 4% next year, driven by low post-WWII investment rates in equipment, software, and IP that are now anticipated to rise alongside deregulation and business tax reform.
- Tax reform is projected to be completed over the next couple of weeks or at the beginning of the year, aiming to inject $1.5 trillion into the economy, serve as a long-term structural adjustment, and potentially reduce regulatory pages by 40% compared to the Obama average.
- Inflation is predicted to remain controlled or lower as tax-induced investment increases aggregate supply, though consumer spending following tax cuts remains uncertain due to historically low savings rates that may prioritize debt reduction or savings restoration over discretionary spending.
- Capital investment is expected to surge, particularly in the central U.S. and Texas, driven by a stabilization of oil prices near $60 per barrel and a shift in capital structures from debt to equity to encourage long-term investments with payoffs over the next five to ten years.
- Business activity and M&A are forecasted to strengthen as firms balance shareholder returns with the necessity of investing in future technologies, potentially seeing mega-deal activity stabilize in the $500 million to $1 billion range while venture capital arms and strategic alliances between large and small organizations increase.
- Trade dynamics include increased U.S. exports due to a stronger global environment and a weaker dollar, Brexit potentially facilitating U.S.-UK trade links, and a stalled TTIP agreement that is slowing anticipated trade conversations.
- NAFTA renegotiations are viewed with cautious optimism, where a potential pullout is considered unlikely to significantly derail growth, though anti-trade rhetoric and specific political figures remain a complicating factor.
- Chinese outbound investment into the U.S. is currently slowing, with the average transaction size dropping to $100 million, a trend deemed unsustainable by some experts who view China's determination to become the largest economy by 2030 as a persistent driver.
- Major transactions between Chinese and American hardware companies are currently facing near-impossible hurdles in the present political environment, potentially resulting in negative outcomes for both parties.
- Global uncertainty is heightened by uncontrolled variables including Brexit negotiations, political rhetoric, and the situation in Korea, which may impact the timing and magnitude of global monetary policy normalization amidst a mix of tightening monetary and looser fiscal policies.
- Specific risks include the potential failure of tax reform if perceived as temporary, the danger of firms returning money to shareholders rather than investing which could lead to speculation, and the threat of private equity lacking transparency to lure firms out of public markets.
- Social challenges such as income distribution, low wages, and the need to address productivity gaps remain concerns, with hopes that regulatory adjustments will effectively mix talent, capital, and technology to resuscitate multi-factor productivity over the longer term.