Monthly economic review - December

3 min read

The US stock market finished the year with strong momentum, driven by robust global economic growth, healthy company earnings and the passage of President Trump’s US$1.5 trillion ($1.9 trillion) tax-reform package in December, which has been described as the biggest US tax overhaul since 1986.

December also saw the US Federal Reserve lifting interest rates as was widely anticipated, raising the Federal Funds rate by 0.25%. This was the third US rate hike for the year, taking the official rate to 1.25%–1.5%. 

The US economy racked up a swag of positive data in December. The Chicago Purchasing Manager's Index (PMI), widely viewed as an indicator of the larger US economy, recorded a reading of 67.6 in December, its best figure since March 2011, and an increase on the 63.9 reported for November (a figure above 50 indicates manufacturing expansion.)

Latest data also showed that US employers added a robust 228,000 jobs in November, with the unemployment rate remaining at a 17-year low of 4.1%. The unemployment rate in the US manufacturing industry fell to 2.6%, the lowest on record (the series dates back to January 2000.) The final reading from the Bureau of Economic Analysis showed the US economy growing at an annual rate of 3.2% in the third quarter of 2017, slightly below the second estimate of 3.3%, but the strongest growth rate since the first quarter of 2015.

US retail sales in the holiday period rose at their quickest pace since 2011, according to Mastercard SpendingPulse, which tracks both online and in-store spending. Sales excluding cars rose by 4.9% from November 1 until Christmas Eve, compared to a 3.7% gain in 2016.

US stock markets reacted to the generally strong economic data – and the boost to company earnings promised by the tax cuts – with another month of gains. The Dow Jones Industrial Average posted its ninth straight monthly gain, its longest streak since 1959, with a 1.9% rise in December taking it to a 28.1% gain for 2017. The S&P 500 Index’s 1.1% gain in December helped it to 21.8% rise for the year, while the Nasdaq Composite Index put on 0.5% in December, ending 2017 up 29.6%.


European markets were not as buoyant as their US counterparts in December, with politics weighing on investors’ minds. In Germany, December ended with coalition negotiations having failed to produce a government, and minority government by Chancellor Angela Merkel’s Conservatives looming. The Spanish province of Catalonia voted in a snap regional election that was widely viewed as another referendum on independence: the combined pro-independence parties won a majority of seats, in a setback for Spanish Prime Minister Mariano Rajoy’s government. The European Commission launched an injunction against Poland for a “serious breach” of European common values and rule of law, for refusing to comply with EU immigration quotas and changes to its judicial system.

These political concerns over-shadowed strong economic data. The Eurozone ended the year reporting the fastest growth of business activity for nearly seven years, with the composite PMI (a private-sector survey) rising to an 82-month high, and the manufacturing PMI hitting 60.6 in December, its highest level since surveys began in 1997.

German companies finished 2017 on a high note by recording the sharpest growth in business activity in more than six-and-a-half years, according to December’s flash PMI survey from IHS Markit. Moreover, the overall performance in the manufacturing sector was the best seen since data was first collected, in 1996. The level of new orders received by German businesses showed the greatest rise since April 2011.

Meanwhile, in France, IHS Markit’s PMI jumped to 59.3 in December, hitting a more than 17-year high. With a strong reading also from the dominant services sector, France’s overall composite index came in 60.0 points, down from the 60.3 recorded in November, but only the second time since May 2011 that the index reading had a 6 in it. In the UK, manufacturing order books were close to a 30-year high in the December quarter, according to Confederation of British Industry (CBI).

On the markets, Germany’s DAX Index shed 0.8% in December, but showed a 12.5% gain for the year. In Paris, the CAC 40 Index lost 1.1% in December, to be up 9.3% for the year. The Euro Stoxx 600 Index ran out of gas toward the end of the year, adding 0.8% in December for a 2017 gain of 11.2%. In London, the FTSE-100 index’s 4.9% gain in December helped it rise by 7.6% in 2017.


The latest figures show that China’s economy grew by 6.8% in the third quarter of 2017, with full-year growth poised for its first acceleration since 2010. But the crackdown on financial risks is affecting growth: the country will keep its target for economic growth at “around 6.5%” in 2018, unchanged from last year. In December, Beijing released its economic blueprint for 2018, showing that high debt levels will be tolerated in a bid for higher growth.

The official manufacturing PMI came in at 51.6 in December, showing improving conditions, with new export manufacturing orders rising to a six-month high. The Caixin manufacturing PMI, which tracks smaller firms, also showed strong momentum with a reading of 51.5 in December, beating all forecasts.

The Japanese economy grew for a seventh consecutive quarter – the longest streak in nearly two decades – according to the country’s Cabinet Office. Third-quarter GDP grew by 2.5% in annual terms, much stronger than the preliminary estimate of 1.4% growth, but down from 2.9% in the second quarter. Manufacturing activity in December expanded at its fastest pace since February 2014, according to the Nikkei Japan manufacturing PMI.

On the stock markets, the Nikkei in Tokyo added 0.3% in December to take its gain for 2017 to 21.3%: the index extended its rising streak to a sixth year, the longest bullrun since the bursting of Japan’s bubble economy in the early 1990s. Hong Kong’s Hang Seng Index was up 2.5% for December, finishing 2017 a hefty 36% higher: China’s H-share index listed in Hong Kong rose 24.4%. The mainland’s Shanghai Composite Index was far more subdued, slipping by 0.3% in December, on the way to a 6.6% gain for the year. In Seoul, the KOSPI stock benchmark eased by 0.4% in December, but added 21.8% in 2017, its best year since 2010. 


The positive tone on Wall Street rubbed off on Australian investors with the S&P/ASX200 index passing the 6,000-point mark in December for the first time since the start of the global financial crisis. For the month, the Australian benchmark gained 1.8%, on its way to a 7.6% rise over the quarter. The S&P/ASX200 added 11.8% for the year, in total-return terms. 

Information current as at 31 December 2017. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.

Sign up to receive our latest news and insights
Economy 20 Oct 2017
US and European shares were buoyed by improving company results and economic conditions in September, while Australia struggled with softening commodity prices.
3 min read
Economy 01 Aug 2017
US shares in July faced the usual buffeting from political events – both domestic and geo-political – but improving economic data and corporate profit results proved more than a match for the negative headlines, pushing the three main US indices higher.
4 min read
Economy 16 Oct 2017
Markets were mixed over the September quarter, with gains internationally and challenges locally.
12 min read