Forecast For National Economy Sees Continued Growth, Though Slowing

Forecast For National Economy Sees Continued Growth, Though Slowing

ANN ARBOR – The U.S. economy should continue to grow over the next two years, but the pace of growth will slow as fiscal stimulus in the form of the effects of the 2017 tax changes and increased federal spending fade, economists at the Research Seminar in Quantitative Economics as the University of Michigan forecast Thursday.

And while the economists anticipated continued, if slowed, national economic growth, they also pointed out some factors that could forecast the approach of a recession, which included a drop in short-term interest rates, declining new home sales, slower growth in the job market (with job increases running at 100,000 new jobs a month or fewer), increases in unemployment filings and a slowdown in the sales of heavy-duty trucks.

The RSQE annually makes its major economic forecasts in mid-November. While Thursday’s forecast focused on the U.S. economy, on Friday the forecast will focus on Michigan’s economy. The Michigan forecast will be revised slightly for the RSQE presentation during the state’s January Revenue Estimating Conference.

2018’s national economy has thus far shown strong growth, 3.3 percent growth during the first three quarters. Daniil Manaenkov of RSQE attributed this to several factors, including the 2017 tax act, “hefty increases” in federal spending and business.

The third quarter showed overall growth at 3.5 percent, which was a bit puzzling given the ongoing trade tensions between the U.S. and China. Manaenkov said it was uncertain how much of the overall third-quarter growth was due to companies building inventory ahead of expected tariffs that would push costs.

For the full year RSQE is estimated GDP growth of 2.9 percent, up from 2.2 percent in 2017. That should drop slowly to 2.7 percent in 2019 but drop below 2 percent growth, to 1.9 percent growth in 2020 as federal fiscal stimulus cuts back.

A growing concern is the major increase in the U.S. budget deficit which is anticipated to top $1 billion for the first time in years. President Donald Trump has called on federal departments to cut spending by 5 percent for his 2019-20 federal budget proposal.

But with Democrats winning control of the U.S. House and Republicans maintaining control of the U.S. Senate, Manaenkov said gridlock should be the norm in Congress, making it unlikely big budget cuts will be enacted for 2020 especially with the presidential election held that year.

That will drive the deficit higher both in terms of dollars spent and as a percentage of the GDP from 4.6 percent in fiscal 2017-18 to 5.2 percent in 2018-19 and 5.5 percent in 2019-20. And that will lead to a major congressional and political decision in early 2019 on raising the federal debt ceiling.

Job growth has also been strong during the year, and RSQE estimates it will finish with an average national unemployment rate of 3.9 percent. If no recession upsets the picture, the average unemployment rate should fall to 3.5 percent in 2019 and 3.4 percent in 2020.

With more people working and wages finally increasing at a faster level, the chance for greater inflation is present, though the RSQE estimated it would stay at 2.2 percent to 2.3 percent for the next two years. That will depend on the Federal Reserve continuing to boost interest rates at a modest level over the next several years, topping out at between 3.25 percent and 3.5 percent in 2020.

Some federal reserve officials have suggested the Fed should be more aggressive in boosting rates to help hold inflation in check.

Trump has made “disquieting” comments about the Fed, which is supposed to operate independently of political pressure. The RSQE said Mr. Trump could still affect the Fed’s policies by the people he names to sit on its board.

While international economic situations were not named as a major indicator of a possibility of recession, international economic growth is expected to slow, especially in China. That could affect both U.S. exports and imports.

By |2018-11-16T10:13:28+00:00November 16th, 2018|Featured, News|

About the Author:

Founder of Michigan News Network, and serves as CEO, as well as Editor & Publisher of MITECHNEWS.COM. Brennan has worked since 1980 as a technology writer at newspapers in New York, NY, San Jose, CA., Seattle, WA., Memphis, TN., Detroit, MI., and London, England. He co-founded and served as managing editor of Pacific Rim News Service (SEATTLE), which developed a network of more than 100 freelance journalists in 17 Asia-Pacific countries.

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