Economic growth in the United States is expected to moderate over the next two years, according to a new analysis from the American Bankers Association (ABA).
The ABA’s Economic Advisory Committee says the slower growth reflects fading policy support in the U.S. and a slowing global economy. The committee’s forecast – culled from 15 chief economists from major North American banks — is that economic growth will ease to 2.1 percent in 2019 and 1.7 percent in 2020. This expansion, if it continues, will become the longest in U.S. history.
“A strong consumer sector and moderate business investment, along with full employment and rising wage growth, should sustain the expansion,” Robert Dye, EAC chairman and chief economist at Comerica Bank, said.
The group anticipates that the national unemployment rate will decline to a 60-year low of 3.5 percent by the end of 2019. The average monthly job growth is expected to drop slightly from about 200,000 in 2018 to 160,000 in 2019. Average hourly earnings are expected to go up 3.4 percent this year.
“Given the tight labor market, firms will be forced to pay up to hire,” Dye said. “More jobs and rising pay should keep confidence elevated and consumer spending healthy.”
Further, they expect household spending growth to hold above 2 percent this year. Purchases of durable goods, including automobiles, will remain strong but diminish some from the 2017 peak.
Also, higher mortgage interest rates are expected to impact the demand for housing. Thus, home prices are expected to grow 4.4 percent nationally this year and 3.3 percent next year.
The committee does not forecast a recession in 2019 or 2020, but it acknowledges that heightened uncertainty could pose a risk to the U.S. and global economy. It forecasts a 20 percent chance of a U.S. recession this year and 35 percent in 2020.
“A range of developments pose threats, particularly cooling global growth, recent financial market volatility, ongoing trade tensions, and political uncertainty,” Dye said. “However, if tariff tensions can be resolved it will boost business sentiment.”
Dye adds, however, that the U.S. economy has been resilient to shocks over the past decade and the strength of households and the banking sector will promote stability, despite the headwinds.
“The Federal Reserve is likely to achieve a soft landing for this economy with healthy labor markets and inflation holding near 2 percent,” Dye added. “Therefore, the Fed is likely to slow the cadence of rate hikes this year, and we expect no more than two 25-basis point increases.”
Rates on the three-month, two-year and ten-year Treasuries are expected to rise about half a percent from present levels to finish the year at 2.9 percent, 3.0 percent, and 3.2 percent, respectively. The 30-year fixed rate mortgage rates are predicted end the year at 4.9 percent. Consumer credit is anticipated to grow 4 percent and business credit to grow at 3.2 percent in 2019.
“The strength of the banking industry will continue to support growth in the economy,” Dye said.