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U.S. Forecast: Economy Thriving in the Face of Record High National Debt

At more than $22 trillion, the U.S. government’s debt is higher than it has ever been, but the rising debt level alone is not enough to crush the strong momentum pushing the country’s economic expansion, says UCF economist Sean Snaith in the new first-quarter forecast from the UCF Institute for Economic Forecasting.

Rising employment, ultra-low unemployment rates, increasing disposable incomes and faster wage growth are creating an environment ripe for accelerated consumer spending, Snaith says. While job growth is projected to slow by 2020, the economy is approaching full employment, and Snaith predicts job growth should keep up with job seekers.

“The January jobs report blew past expectations, and the increase in payroll employment was well above the average growth in monthly payrolls for 2018,” Snaith says. “A further acceleration in job growth is unlikely, but the recent uptick in growth is a result of the Tax Cuts and Jobs Act and other pro-growth policies of the current administration.”

Payroll job growth of 1.6 percent is expected in 2019 before easing to 1.1 percent in 2020 and 0.7 percent in 2021. Unemployment is expected to decline to 3.4 percent in early 2020. For an economic recovery approaching its 10th year, Snaith says, stronger job growth could not be realistically expected.

UCF economist Sean Snaith predicts the U.S. economy will accelerate from about 3 percent growth in 2018 to 3.2 percent growth in 2019.

After the Federal Reserve raised interest rates in September 2018, Snaith anticipates at least two additional rate hikes in 2019. The forecast points to pending economic data to determine the timing and size of the projected rate hikes. Stronger economic growth will prompt additional hikes over the next three years, according to the forecast, with the federal funds rate expected to hit 3 percent by the end of 2021.

“We expect the Federal Reserve to continue to take baby steps as it incrementally raises interest rates,” Snaith says. “There is no reason for the Fed to upset the apple cart as long as inflation continues to remain in check.”

Snaith predicts the U.S. economy, as measured by Real Gross Domestic Product, will accelerate from about 3 percent growth in 2018 to 3.2 percent growth in 2019 before easing to 2.9 percent in 2020 and 2.5 percent in 2021. Note, due to the federal work stoppage, fourth quarter 2018 GDP data released today were not incorporated in this forecast.

By prompting an increase in take-home pay, the forecast notes the effects of the Tax Cuts and Jobs Act will lead to higher consumer spending and support already-high levels of consumer confidence and faster GDP growth.

The housing market continues to progress and is projected to steadily improve through 2021 in the face of higher mortgage rates. The forecast predicts housing starts will rise from 1.26 million in 2018 to 1.54 million in 2021, and average levels of annual housing starts from 2018 – 2021 will be 1.41 million.

For the complete U.S. report from the Institute for Economic Forecasting, visit business.ucf.edu/centers-institutes/institute-economic-forecasting/.

The Institute for Economic Forecasting strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses.

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.

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