The U.S. Economic Forecast

Updated: April 11, 2017

Sentiment much stronger than performance

Despite strong consumer, business, or investor confidence, real GDP growth slowed to about 0.9 percent annualized rate in the first quarter, on the back of disappointing post-holiday consumer spending. Consumer spending, however, is likely to bounce back in the second quarter. After all, the first quarter result reflected a spike in inflation, lower utility bills and overall leveling off in the vehicle replacement cycle. Tightening labor market conditions bode well for households incomes and stronger confidence to at least maintain nominal trend in spending. The important point to make is that business investment may be turning the corner as it had finally supported growth except for the inventory draw down. A recovery in oil prices and stronger global growth is helping to lift business investment and support the manufacturing sector. But small business sentiment is already leveling off. For confidence to fuel broader investment, reform of health care and taxes are needed. But, the failure to pass a new health care act will now make tax reform even more difficult, and weigh on business decisions. Business investment, therefore, will likely revert to a weak trend growth. Nonetheless, consumption is the key to real GDP growth remaining in a 2.0-to-2.5 percent range. And the labor market will continue to tighten. With inflation slightly above target and unemployment rate below its natural rate, Fed will normalize policy further via raising the federal funds rate followed at some later point by actions to reduce its balance sheet. Meanwhile, there is a risk of the dollar moving still higher.

The U.S. Economic Forecast

Percentage Change, Seasonally Adjusted Annual Rates

  2016 2017 2017 2018 2016 2017 2018
  IV Q* I Q II Q 1st half 2nd half 1st half 2nd half annual annual annual
Real GDP 2.1 0.9 2.9 1.9 2.3 2.4 2.0 1.6 2.1 2.3
Real Consumer Spending 3.5 0.7 2.8 1.7 2.6 2.5 2.3 2.7 2.5 2.5
Residential Investment 9.6 10.5 5.4 7.9 5.0 4.0 3.5 4.9 5.2 4.3
Real Capital Spending 0.9 6.8 3.8 5.3 3.4 4.1 2.6 -0.5 3.0 3.6
Exports -4.5 7.9 2.0 5.0 1.8 1.6 1.5 0.4 3.1 1.7

* Actual Value

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