Regardless of your political beliefs, the markets were expecting a specific election outcome. According to experts* from public policy, global economics, and Wall Street forecasting, the overwhelming consensus was a Clinton Democratic presidential win but a Republican held House. This split government was expected to produce one of the best possible compromises for the economy: global corporate tax reform, which the Republicans want and infrastructure spending, which the Democrats want. If the country can do both of these in the next two years, our growth could tick up. Otherwise we are looking at a continued growth of between 1-3%. The Trump win and Republican sweep of Congress will create much greater volatility and uncertainty. Expect to have many more swings up and down in the coming year.

Barring any other major shock, the US economy is fine with stable growth expected to continue. The good news has really been that the dollar is finally stable which is allowing companies that import or export to find their footing on prices and expenses.

There is also general consensus that interest rates will go up slightly, probably at the end of this year, but not enough to have a dramatic impact on growth. So far, corporate spending on real estate and equipment for growth has been extremely cautious which might loosen up a little next year once the election is over and there is more certainty around the global economy. There is no doubt that Nevada and Las Vegas have seen a benefit from the expansion occurring in the Western Region**. We will have to stay vigilant, though, as Phoenix, Dallas, and Denver continue to court companies.

One change you have seen this year is a general tightening of credit quality expectations from banks around borrowers. All of the new banking regulations kicked into high gear in 2016 as well as the Basel III capital requirements. These regulations are quite complex but the net impact is that banks will have to break up their loan portfolios into predefined risk categories and hold more capital and have much higher expenses for loans deemed to have higher risk. Based on this new development, expect a much greater spread in the rates charged by a bank from borrower to borrower. Those with a good risk rating will have significantly lower rates than those with a higher risk rating. Not all banks have figured this all out yet, but as they start to see their expenses rise, new policies will trickle down to the bankers. Each bank might approach it in a slightly different manner.

*US news was summarized from data by Ethan Harris-Head of Global Economics, Edward Hill-Public Policy Executive, and Savita Subramanian-Head of US Equity Strategy for Bank of America Merrill Lynch
**Local economic news was summarized from data by the Center for Business and Economic Research at UNLV

Lisa Lobue, Commercial Banking
Bank of America Merrill Lynch
702-515-8759 | Lisa.lobue@baml.com