Economy's performance in second half of 2017 and passage of tax reform legislation is driving increased optimism about pace of growth.
Another year of above-trend growth in 2019 could usher in the longest period of U.S. economic expansion to date, according to the January issue of Wolters Kluwer's Blue Chip Economic Indicators.
The Blue Chip consensus forecast of real GDP growth in 2018 has increased for four consecutive months, and is now expected to grow 2.7 percent on a year-over-year (y/y) basis – the best y/y increase since 2015. The consensus also forecasts that real GDP will register y/y growth of 2.4 percent in 2019, indicating continued - albeit slower - growth. If the current economic expansion continues into the second half of 2019, as the consensus forecasts, it would mark the longest period of U.S. economic expansion, surpassing the period of growth that occurred in the 1990s.
"A variety of factors have contributed to increased optimism, but the economy's performance in the second half of 2017 and Congress's passage of tax reform legislation contributed significantly," said Randell E. Moore, executive editor of Wolters Kluwer's Blue Chip Economic Indicators. "The consensus indicates that cuts in individuals' tax rates are expected to help underpin consumer spending and reductions in corporate tax rates could spur further investment, but just how much of a boost tax reform will have on GDP growth is still debated."
When asked what were the biggest risks to continued economic growth this year, panelists' most frequently mentioned "a sharper-than-expected rise in interest rates brought on by higher inflation or simply a policy mistake on the part of the Federal Reserve." The second most often cited worry was increased protectionism, the potential for a trade war and a collapse in NAFTA negotiations with Mexico and Canada. Panelists also mentioned the threats that the simulative impact of tax reform on business investment and consumer spending simply fails to be as large as expected, as well as a sharp correction in asset prices. Taking these risks into account, the consensus puts the odds of a U.S. recession beginning this year at only 16.1 percent, while the odds of a recession that begins in 2019 were put at 28.1 percent.
Other consensus findings from the January issue of Wolters Kluwer's Blue Chip Economic Indicators survey include:
- The consensus predicts U.S. real GDP grew at an annual rate of 2.7 percent in the final quarter of 2017, according to the January 4-5 survey. That would leave it registering a y/y increase of 2.3 percent last year, but up 2.6 percent if measured fourth quarter-over-fourth quarter (q4/q4).
- Solid economic growth this year is expected to leave the unemployment rate averaging 3.9 percent - the lowest annual average in any year since 1969.
- The Federal Reserve is predicted by the consensus to increase interest rates by at least 75 basis points in 2018. Almost 87 percent of the Blue Chip panelists predict the first hike in rates by the Federal Reserve in 2018 will come at its March 20-21 meeting.
- The consensus forecasts that real GDP will register y/y growth of 2.4 percent in 2019 and be up 2.2 percent on a q4/q4 basis.
About Wolters Kluwer's Blue Chip Economic Indicators
Established in 1976, Wolters Kluwer's Blue Chip Economic Indicators has become synonymous with the latest in expert opinion on the future performance of the U.S. economy by presenting the forecasts of 50 economists from the nation's largest and most respected manufacturers, banks, insurance companies, and brokerage firms. The newsletter compiles the experts' individual and combined forecasts for the current and following year for variables including, but not limited to, real GDP, consumer price index, industrial production, real disposable personal income, pre-tax corporate profits, unemployment rates and real net exports.
For more information on Wolters Kluwer's Blue Chip Economic Indicators please visit wolterskluwerlr.com/bluechip.