Economic expansion in the United States is expected to continue, even though downside risks are growing, according to the Economic Advisory Committee of the American Bankers Association.
The economy has been expanding for 10 years and has tied the longest post-war period of prosperity in U.S. history. The advisory committee – which is comprised of 16 chief economists from major North American banks – expects economic growth to continue through 2020 at a rate near the committee’s two percent estimate of growth.
Household and business balance sheets, income growth, good credit availability, and a supportive financial environment are all positives for the U.S. economy.
“Households are in a good place right now, and they are a major stabilizing force for the economy,” Robert Dye, EAC chairman and chief economist at Comerica Bank, said. “Sustained consumer spending will keep the expansion on track.”
Monthly job growth is expected to remain solid at 160,000 this year and 130,000 next year. They expect the national unemployment rate to remain stable at 3.7 percent through 2020. Also, tight labor availability is projected to support higher wages as firms have to bid up to hire. Average hourly earnings growth will be about 3.2 percent through next year, they say.
However, the group sees slowing growth in business fixed investment and inventory accumulation, reflecting increased uncertainty. The escalation of trade disputes is already weighing on global and U.S. business confidence, the economists add.
“While the outlook is positive, there are some dark clouds on the horizon,” Dye said. “Concerns about an escalation of trade conflicts, a weakening global economy, and the potential for fiscal tightening could lead businesses to pull back on capital investment. While there is potential for trade tensions to recede in the months ahead, the uncertainty facing businesses is likely to persist.”
The odds of the economy falling into recession between now and the end of 2020 is 35 percent.
Inflation is running below the Federal Reserve’s objective of 2 percent this year before returning to this target in 2020. The economists anticipate that the Federal Reserve to lower interest rates by 25 basis points at the end of July with a further 25 basis point rate cut before the end of this year.
“The FOMC is achieving its goal of full employment, but with inflation running below target and downside risks to the economy growing, we expect the Fed will want to be more accommodative,” Dye said.
The committee expects rates on three-month Treasuries to drift down with the federal funds rate, from 2.1 percent at present to 2.0 percent at year-end and 1.9 percent a year later.
“The strength of the banking industry will continue to support growth in the U.S. economy,” Dye said.
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