Americans Thrilled By New Economic Situation

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Posted: Jan 11, 2018 10:06 AM
Americans Thrilled By New Economic Situation

This morning, Quinnipiac released an exhaustive poll on President Trump with one question on the state of the economy.  The results are mind-bogglingly positive as 66% of those asked see the current economy as excellent or good from 29% a year earlier. 

There is no doubt when most people hear this news they will also hear that most of those asked give more credit to President Obama than President Trump.  It’s such a far fetched notion for a myriad of reasons, that an economy that was essentially driftwood, and now rising like a redwood, would be attributed to the driftwood policies.

As for the poll itself, it must be noted by the mainstream media as they attempt to belittle the most important part (economy):

Sample:

  • 34% Dem
  • 38% Independent
  • 23% GOP

Questions before 'economy' about President Trump's:

  • Level headed
  • Intelligent
  • Fitness

Bottom Line

The economy has come on like gangbusters under President Trump, and it is building momentum (18% rate excellent in January from 11% in December 2017 and from only 2% in November2016). This is the kind of momentum that doesn’t get snuffed out overnight.

In fact, it’s more likely people will continue to feel better about the economy and take self-fulfilling actions with positive impact.

As for the credit game, there will always be constant media attacks on President Trump, which overemphasize his tweets and underemphasized or ignore his accomplishments.  It’s one thing to tell a person holding a clipboard what they want to hear, but its unlikely people would step into a voting booth to reject this new day in America.

Plus, good news continues to pour in from the tax law, and this is going to make a lot of people second guess where credit should go.

Breaking News

Walmart Citing New Tax Law Announcing

  • New starting wage to $11
  • Cash bonuses $200 to $1,000
  • 10- Weeks paid maternity leave
  • 10- Weeks paid parental leave
  • $5,000 adoption benefit

Reasons for Investor Optimism  

Businesses are growing the top line as total business sales have reversed after drifting lower for two years and are now at record levels.

Stronger top line growth means bigger bottom line profits with yearly increases now for five straight quarters.

Those earnings good times are only just beginning, as estimates (Fact Set) suggest strong earnings throughout 2018. These assumptions were before the tax bill was passed, and already today, we’ve seen the impact with two companies.

Lennar Homes (LEN) is partially intriguing as the company missed in part to a delayed closing of a deal, but lower gross and operating margins were yellow flags as well.  Moreover, the effective tax rate edged to 35.5% from 32.7% a year earlier. 

The company is going to benefit greatly from a 21% federal tax rate.  In addition, the new tax law will help top line revenue growth mentioned in the company press release:

"'Our results [...] benefited from strong demand for homes, low unemployment, favorable interest rates and increased consumer confidence,' Lennar Chief Executive Stuart Miller said in a statement.

'General enthusiasm for the strength of the economy, combined with the added tailwinds of recent tax law changes, continue to propel the housing market forward.'"

2018 Revenue and Earnings Estimates

For Q1 2018, analysts are projecting earnings growth of 12.0% and revenue growth of 6.8%.

For Q2 2018, analysts are projecting earnings growth of 12.3% and revenue growth of 6.8%.

For Q3 2018, analysts are projecting earnings growth of 13.4% and revenue growth of 5.6%.

For Q4 2018, analysts are projecting earnings growth of 13.0% and revenue growth of 4.4%.

For all of 2018, analysts are projecting earnings growth of 13.1% and revenue growth of 5.7%.

Source: Fact Set Data

Manufacturing Soaring

  • Manufacturing Jobs +198,000 in 2017

Home Sweet Home

KB Homes posted results that beat the street on revenue and earnings, but the biggest highlight was the new record –low selling, general and administrative expense ratio, which swelled the company’s margins.

Guidance points to company-specific reasons for enthusiasm, but it underscores the current strength in the economy:

"As we look to 2018, we expect conditions will remain favorable in most of our served markets, with solid demand for housing driven by healthy employment, rising household incomes and strong consumer confidence, and continued limited supply."

Kicking the Tires

One of the first areas of the economy to pop in response to the presidential election outcome was housing.  That soft data is becoming concrete and will get better as more regulations are removed.

Home buyer traffic was in contraction since October 2005 before spiking in December 2016 after the election, and since then, its gained even more traction.