After a somewhat slow first quarter of 2.2 percent real GDP growth, the U.S. economy accelerated to 4.1 percent growth in the second quarter.

George Mokrzan, director of economics, Huntington Bank
George Mokrzan is director of economics at Huntington Bank

Overall, the economy is expected to grow 2.9 percent in 2018, and maintain much of that momentum into 2019. Our initial real GDP forecast for 2019 is 2.7 percent. Should our forecast come to fruition, it would be the strongest 2-year period of economic growth during the current economic expansion that began in July 2009.

Supported by rising disposable personal income growth, sound consumer finances and generally strengthening labor markets, consumer spending is expected to exhibit solid growth. Buoyed by new incentives created by “The Tax Cuts and Jobs Act of 2017,” business investment is forecasted to gradually accelerate and become a main source of overall economic growth in both the second half of 2018 and in 2019.

Housing is forecasted to continue steady growth, with a shift toward single-family home construction from multi-unit housing. Home price growth is expected to gradually cool to an annual pace of 2.5 percent to 3 percent after average annual growth of 6.1 percent in the last 5 years.  And, government budgets overall are expected to raise spending in 2018 and 2019.

Exports and imports should sustain growth throughout the next 2 years, but international trade tensions could temporarily challenge some industries that are dependent on foreign sources for parts and materials. Export markets for some foods and manufactured goods targeted by increased foreign tariffs could also experience reduced foreign demand.

The current international trade disputes are also viewed as a risk to the generally positive economic environment, if business confidence is negatively impacted enough to result in less capital spending than warranted by high-capacity utilization in many industries. However, at this point it is a potential risk rather than a forecast. We think that the current period is one of trade renegotiation rather than trade war.

Inflation is expected to maintain a somewhat quicker pace than exhibited during much of the current economic recovery and expansion. Overall inflation of the CPI is projected to increase to 2.6 percent on an average annual basis in 2018, followed by 2.3 percent in 2019. However, price pressures are becoming more significant at the producer level, where capacity constraints are increasingly prevalent.

The Federal Reserve is forecasted to raise the Fed Funds rate into the 2-percent to 2.25-percent range by year-end 2018, and up to the 2.75-percent to 3-percent range by year-end 2019. Long-term interest rates are also forecasted to remain on a gradually rising trend to 3.25 percent at yearend 2018 and 3.5 percent at year-end 2019. The removal of monetary policy stimulus at the same time that fiscal policy stimulus is being added is the major cause of generally rising interest rates.


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