Increasingly, I hear the phrase "synchronous global recovery" bandied about in the business media. Most of the time I am either annoyed or amused by economics jargon, but this is one of those rare times when I am just going to flow with it. That's because the situation that is being called a synchronous global recovery is a really good, but truly rare thing, no matter what you call it.
True believers in the art and science of economics (like me) spend their whole lives trying to get everything lined up and moving in the right direction. Everybody knows that it almost never works out, and the true believers catch more than their share of flak as a result.
But as of this moment, it appears that the global economy is moving in the right direction and it is picking up speed. This seems to me to be at least as momentous an occasion as the recent solar eclipse and you don't even need special glasses to enjoy it.
So as we look forward to 2018, what does a global synchronous recovery mean for manufacturers in the United States? For starters, it means there is no recession on the horizon. Many of the well-established trends such as a low unemployment rate, strong consumer confidence and a higher stock market will likely persist through next year.
But there are a few trends that will change.
The rate of inflation will accelerate in 2018. Many talented economists have crashed on the rocks over the past eight years by predicting an imminent increase in the rate of inflation. Some have even gone so far as offering plans to generate more inflation. I have kept my powder dry until now, but I am officially calling for inflation to rise above 2 percent in 2018.
Rising inflation will affect some of us more than others, but the overall changes will be noticeable to everyone. You will likely have to increase wages and salaries at a faster rate than you have in the past few years, and you will also pay more for materials. But you should be able to pass at least a portion of these cost increases through. Remember that accelerating activity in the marketplace is the reason I am predicting an increase in prices, so the good will outweigh the bad for most of us.
Another trend that will accelerate is the rise in interest rates. The Fed has consistently indicated that it will raise its Fed Funds Rate at a quicker pace next year. It will also reduce the amount of bonds it purchases — officially referred to as the gradual tapering of quantitative easing. The bond market will follow suit by gradually pushing bond prices lower which means that interest rates will go higher.