Published in Economic Development

Despite prior worries, national economy continues strong expansion

BY Saturday, June 09, 2018 03:25pm

Brian Long anticipated by now to see proof that the U.S. economy had started to flatten out. 

However, those signs have failed to materialize.

The latest economic report from the Institute for Supply Management is “far stronger” than he expected, signaling continued economic growth for the U.S at least through the rest of 2018 and into next year.

“I don’t see anything right now to trip us up,” said Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business.

“The numbers we have coming in are very strong,” he said. “Obviously, it would take a major dip of some sort, some kind of catastrophic event, to distract the momentum that we have going forward right now.”

Like many economists, Long expects the U.S. economy largely to maintain a “very positive trend” for the second half of the year, although growth could ease a bit toward the end of 2018 and throughout next year.

“It wouldn’t be a total surprise to see the latter part of the year start to back off some. We’re still going to have positive numbers, but there’s just Despite prior worries, national economy continues strong expansion so far some of these industries can go,” he said.

His views are generally consistent with that of other economists who expect real GDP growth for the U.S. to taper off in 2019.

Economists at both Comerica Inc. and PNC Bank project real GDP growth in the mid-3 percent range for all of this year, then dipping below 3 percent in 2019.

Comerica’s predictions for real GDP growth include a “positive push” from federal tax reform Congress passed in late 2017, said Chief Economist Robert Dye.

Bottom line: Economic conditions remain in good shape, Dye said.

“We’re continuing to generate a good amount of jobs, we’re putting people to work, we’re seeing wages going up and consumer confidence is high,” he said.

Consumer sentiment in the first quarter, as measured by a monthly University of Michigan survey, was at its highest point since the fourth quarter of 2000, although it did slip in April and May as consumers expected smaller income gains than a month or a year ago. High confidence led to a 0.6-percent increase in consumer spending in April, the largest increase in five months, according to the U.S. Department of Commerce.

Business confidence remains high as well. In one indicator, the monthly index for small business optimism measured by the National Federation of Independent Businesses has been running at its highest point in more than a decade, although it also eased slightly in April and May.

Comerica’s Dye cautioned that the national economy always works in cycles, noting the current economic expansion has lasted for about a decade and eventually will move into a downturn. Still, he added: “Time doesn’t cause recessions, and there’s no time clock out there that says we have to have a recession simply because the business cycle has been long.”

Even so, businesses that haven’t already should start building a potential economic downturn into their planning beyond next year.

“It’s prudent at this point just to have the radar up and to have our eyes open,” Dye said. “I think there is a very key set of decisions that business owners and managers are going to be making over this year because we are experiencing a good economy now, we have had tax reform and that should stimulate business investment.

“So the decision as a business owner and manager is how much do we expand business and continue to reinvest and continue to push market share to take advantage of good and healthy demand? And, at the same time, (how do we) sort of keep one eye on the length of the business cycle and perhaps an increased likelihood of recession over the next three years and be prudent going into that?”

While the U.S. economy remains in good shape, economists and others worry about a possible trade war under President Trump, who has proposed new tariffs on trading partners to protect U.S. industries.

“We hope that cooler heads will prevail in the end, and that escalation of tensions can be avoided,” U-M economists wrote in their economic briefing issued in mid May.

A major international trade war clearly “would put a damper not just on our economy, but the world economy,” Long said.

Other potential dampers on the economy could come by way of rising interest rates and tightening monetary policy that “sort of puts the economy in a vice,” Dye said.

The Federal Reserve has increased rates once this year and, as the year progresses, economists generally expect further increases.

Comerica’s Dye expects a rate hike at this week’s Federal Open Market Committee meeting “with almost near certainty.” A subsequent rate hike in September has a “pretty high probability,” and the odds of another in December “are starting to creep up a little bit because inflation indicators are warming up,” he said.

Comerica forecasts the Consumer Price Index — which measu res the change in prices of various consumer goods and services over time — to be 3 percent for the second quarter, versus 2.3 percent in the first quarter. Led by oil prices, the CPI will come in at 3.2 percent in the third quarter and 3 percent in the fourth, then ease to 2.7 percent to start 2019, Comerica predicts.

Read 3728 times Last modified on Sunday, 10 June 2018 20:35