We are two months into 2018 and experiencing steady growth from the prior year. Let’s look at the economic factors that impacted Michigan CLASS yield and recap the successful year that 2017 was for the program.
Top Economic Drivers of Increased Yield in 2017
- Three Federal Open Market Committee (FOMC) Rate Hikes
The Federal Funds target rate was raised three times (March, June, and December), starting the year at 0.50% to 0.75% and ending at 1.25% to 1.50%. The FOMC’s December dot plot indicated three potential rate hikes for 2018 based on the strength of the labor market and optimism that inflation will rise over the medium term.
- Over Two Million Jobs Added in 2017
The unemployment rate dipped from 4.8% to 4.1% over the course of 2017. Non-farm payrolls added just over two million jobs in 2017, falling short of 2016’s growth but proving to be more than enough to put downward pressure on the unemployment rate and further tighten the labor market.
- Stronger Economic Growth
The U.S. economy grew approximately 2.5% percent in 2017. Optimism regarding synchronized global growth and the impact of the Tax Cuts & Jobs Act has the markets optimistic that the U.S. economy can continue to grow at a healthy pace in 2018.
- Positive Consumer Sentiment
Strength in the housing market, a tightening labor market, and record high stock prices have lifted consumer sentiment. With roughly two-thirds of the GDP derived from consumer spending, a healthy consumer has led to a healthy economy.
- Low Market Volatility
With the FOMC striving for maximum transparency, the stock and bond markets remained remarkably calm over the course of 2017. Stability in the financial markets has made the FOMC’s job a bit easier (for now). While growth in the economy has certainly made things exciting, the Michigan CLASS program also experienced steady growth in 2017. Safety, performance, and growth in Participation highlight the successful year.
As we ramp up for another successful year, Michigan CLASS anticipates additional rate increases, fund growth, and continued success, largely in part to the continued participation of the many program Participants throughout the state. Michigan CLASS continues to keep the safety of your investments the top priority and positions the program as a smart investment choice in a rising rate environment.
As always, the Michigan CLASS Relationship Team is here to answer any questions you may have or speak to you directly about your account, the program, or outlooks for 2018. They continue to be an extension of your staff and a resource for you. Please do not hesitate to reach out to Rich Garay or Kristin Angel.