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Economy in Brief

NABE 2018 Forecast Calls for Moderate Growth & Higher Inflation
by Tom Moeller  June 5, 2017

The National Association for Business Economics expects 2.4% real U.S. economic growth in 2018, revised slightly from the earlier expectation of 2.5% growth. These follow expected growth of 2.2% this year, revised from 2.3%. Quarterly GDP growth is expected to range between 2.3% and 3.1% through next year. Growth in personal consumption expenditures is forecast to remain fairly steady at 2.6%. Expected growth in business fixed investment, however, of 4.4% is the quickest rate of growth since 2014. Residential investment growth also is expected to improve to 5.2% next year after a 5.7% advance in 2017. Government spending growth is projected to improve slightly to 1.2%, the quickest increase since 2015. Deterioration in real net exports is forecast to continue as expected import growth of 4.2% outpaces a 3.5% advance in exports. The rate of inventory investment is expected to improve slightly next year versus 2015, but remain below the gains from 2012 to 2015.

Housing starts are expected to average 1.35 million next year, the strongest level since 2007. Expected light vehicle sales of 17.1 million units in 2018 were revised down, but remain near the all-time high. Average monthly gains in payroll employment are expected to slow to a slightly lessened 159,000 next year, down from the 250,000 average in 2014. Expectations for the unemployment rate of 4.3% next year were reduced from 4.5%, and would leave it at the lowest level since 2000.

Consumer price inflation is expected to average an unchanged 2.3% in 2018 versus 2.4% growth this year. The chain PCE price index, however, should rise a reduced 2.0% from the beginning of next year to the end of 2018, the strongest gain since 2011. The index less food & energy is expected to rise a reduced 2.1%, up from 1.0% growth in 2010. The cost of crude oil is expected to average $55 per barrel at the end of next year, up from $53 this coming December.

The forecasted 3.10% interest rate on 10-year Treasury notes at the end of 2018 was reduced from the earlier forecast of 3.25% and follows a lowered 2.75% estimate at the end of this year. The Fed is expected to continue raising the federal funds rate to 2.13% by the end of 2018. Corporate profits after tax next year should rise a slightly reduced 5.0%, the quickest rate of growth since 2012. The expectation for the Federal government budget deficit was reduced slightly to $625 billion in 2018, the largest deficit in years.

The figures from the latest NABE report can be found in Haver's SURVEYS database.

National Association For Business Economics 2018 2017 2016 2015
Real GDP (% Chg. SAAR) 2.4 2.2 1.6 2.6
  Personal Consumption Expenditures 2.6 2.5 2.7 3.2
  Business Fixed Investment 4.4 3.4 -0.5 2.1
  Residential Investment 5.2 5.7 4.9 11.7
  Gov't Consumption & Gross Investment 1.2 0.2 0.8 1.8
  Change in Real Business Inventories (Bil. $) 42.0 31.5 21.1 84.0
  Real Net Exports (Bil. $) -669.0 -621.1 -561.5 -540.0
Housing Starts (Mil. Units) 1.35 1.27 1.17 1.11
Light Vehicle Sales (Mil. Units) 17.1 17.2 17.5 17.4
Payroll Employment Average Monthly Change (000s) 159 178 187 226
Civilian Unemployment Rate (%) 4.3 4.5 4.9 5.3
Consumer Price Index (Y/Y %) 2.3 2.4 1.3 0.1
Fed Funds Rate (%, Year-End) 2.13 1.38 0.63 0.38
10-Year Treasury Note (%, Year-End) 3.10 2.75 2.45 2.27
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