The November presidential election pushed stock prices higher and boosted consumer and business confidence, but a good mood is not the same as a good economy, says University of Central Florida economist Sean Snaith.
“Unless this mood translates into actual economic spending activity, the boost in confidence enjoyed thus far will prove to be fleeting,” says Snaith, the director for the Institute for Economic Competitiveness at the UCF College of Business in his latest U.S. forecast. “Ultimately this will depend on the Trump administration’s ability to follow through on economic policies that will provide the impetus for spending to grow.”
Snaith says the administration must get its proposed tax reforms and infrastructure spending plans, which are critical to boosting economic growth, off the drawing board and into action. Snaith’s forecast predicts this will occur in late 2017 or early 2018.
The U.S. economic forecast, which is published semi-monthly by the Institute for Economic Competitiveness, projects the Federal Reserve will raise interest rates another 25 basis points in June, the first such increase since March. Stronger economic growth and higher inflation from Trump administration policies are expected to quicken the pace of increases over the next three years with the federal funds rate hitting 3 percent by the end of 2019, according to the forecast.
Real GDP growth, which slowed to 1.6 percent in 2016, is forecasted to reach 2.7 percent in 2017 and 3.5 percent in 2018 before slipping to 3.4 percent in 2019 and then 3 percent in 2020 as the Federal Reserve tightens interest rates. Consumer spending is the largest component of GDP. In 2015, real consumer spending growth was 3.2 percent, and in 2016, spending grew at 2.7 percent.
“The U.S. consumer has been playing the biggest role in supporting the economic expansion, tepid as it has been, over the past three years,” Snaith says. “Continued gains in employment, more rapidly rising wages and improving household balance sheets should continue to provide a solid foundation for consumer spending growth. Tax cuts and spending programs proposed by the Trump administration should also boost consumer spending growth.”
The proposed tax cuts include reducing the current seven tax brackets, which range from 10 percent to 39.6 percent, into three brackets of 10 percent, 20 percent and 25 percent, increasing the standard deduction to $25,000 for single filers and $50,000 for joint filers and reducing the corporate tax rate to 15 percent.
The housing market will continue to improve slowly through 2020 even with rising interest rates, and housing starts are expected to rise from 1.29 million in 2017 to 1.66 million in 2020.
The unemployment rate is expected to decline to 3.6 percent in late 2020, and job growth should be enough to keep up with labor force growth through the end of 2020. Underemployment, which has been a persistent problem in this recovery, stands at 8.6 percent as of April 2017 but also will continue to decline through 2020.
Inflation is expected to accelerate in 2017 pushing the Fed to move more quickly to raise interest rates. Core Consumer Price Index inflation will average 2.7 percent during 2017-2020.
For the full forecast, visit: https://issuu.com/ucfbusiness/docs/ucf-us-forecast-may2017
Snaith is a national expert in economics, forecasting, market sizing and economic analysis who authors quarterly reports about the state of the economy. Bloomberg News has named Snaith as one of the country’s most accurate forecasters for his predictions about the Federal Reserve’s benchmark interest rate, the Federal Funds rate.
The Institute for Economic Competitiveness strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses. Through these analyses, the institute provides valuable resources to the public and private sectors for informed decision-making.