U.S. Forecast: How Will Economy Fare on Mr. Trump's Wild Ride

Just a few turbulent weeks into President Donald Trump’s administration, forecasters’ fears of a recession continue to decrease, according to the latest U.S. forecast from the Institute for Economic Competitiveness at UCF College of Business.

In the first Survey of Professional Forecasters by the Federal Reserve Bank of Philadelphia since Trump took office, the forecasters indicated an 11.21 percent chance that a decline in real Gross Domestic Product will occur in the second quarter of 2017.

“That anxious index, which is a term coined by The New York Times reporter David Leonhardt, indicates the probability of a decline in real GDP in the quarter after a survey is taken,” said Sean Snaith, director of the Institute for Economic Competitiveness, in his first quarterly national economic forecast of 2017. “In the most recent survey, the forecasters’ assignment of probability for a near term contraction in real GDP is the lowest since 2015.”

Snaith said he anticipates faster economic growth and higher inflation—both of which have eluded the Federal Reserve for years—based on Trump’s proposed economic policy path, which emphasizes tax reform, regulatory rollbacks and infrastructure spending.

“As details of the economic policies pursued by the Trump administration become available and the wild ride of the initial weeks of the administration concludes, the possibility that economic growth could accelerate at an even faster pace, which seemed unlikely prior to the presidential election, could very well come to pass,” said Snaith, likening Trump’s first few weeks in office to Disney’s topsy-turvy Mr. Toad’s Wild Ride. “But if the wild ride lasts longer than expected, economic motion sickness could change this positive outlook to a negative one.”

The Institute for Economic Competitiveness report forecasts average real GDP growth from 2017 to 2020 of 3.1 percent. The projected growth rate for 2019 would be the first time the U.S. economy experienced annual growth at 3.4 percent or higher since 2004, according to the forecast.

Average monthly payroll job growth has been decelerating since 2014, but the forecast projects the new administration will provide a bump to job growth in 2018-19. Snaith said uncertainty and regulatory burdens have been hindering payroll job growth, which will slow to a growth rate of 1.5 percent in 2017 before increasing to 1.6 percent in 2018 and 1.7 percent in 2019.

A stronger dollar in a world of weak growth and rising interest rates in the U.S. are expected to boost imports and depress exports. As a result, Snaith said he expects net exports to weigh on the economy through 2020, although he notes Trump’s trade policies could alter this outlook significantly.

The forecast shows the housing market slowly improving through 2020, despite rising interest rates, with housing starts rising from 1.28 million in 2017 to 1.67 million in 2020. Unemployment rates are expected to decline to 3.8 percent in mid-2020, and job growth will be enough to keep up with labor-force growth until 2019 when unemployment stabilizes.

Inflation is expected to accelerate in 2017, which Snaith says will push the Fed to move more quickly to raise interest rates. Core Consumer Price Index inflation is expected to average 2.5 percent during 2017-20.

For the full forecast, visit:  https://issuu.com/ucfbusiness/docs/ucf-us-forecast-feb_2017

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.