Thursday, January 12, 2017

Question #2 for 2017: How much will the economy grow in 2017?

by Bill McBride on 1/12/2017 02:01:00 PM

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

2) Economic growth: Heading into 2017, most analysts are pretty sanguine and expecting some pickup in growth due to tax cuts and infrastructure spending.   How much will the economy grow in 2017?

Here is a table of the annual change in real GDP since 2007.  Economic activity has mostly been in the 2% range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%.


Annual Real GDP Growth
YearGDP
20053.3%
20062.7%
20071.8%
2008-0.3%
2009-2.8%
20102.5%
20111.6%
20122.2%
20131.7%
20142.4%
20152.6%
201611.7%
1 2016 estimate.


It is possible that there will be a pickup in growth in 2017 due to a combination of factors.

The new administration's policy proposals are unclear, but it appears there will be tax cuts, possibly more government spending on infrastructure, and possibly less regulation (easier borrowing).  

There will probably be some economic boost from oil sector investment in 2017 since oil prices have increased (this was a drag last year).

The housing recovery is ongoing, however auto sales might have peaked.

And demographics are improving (the prime working age population is growing about 0.5% per year, compared to declining a few years ago).

All these factors combined will probably push GDP growth into the mid-to-high 2% range in 2017, but this will depend somewhat on which policies are enacted.

Here are the Ten Economic Questions for 2017 and a few predictions:

Question #1 for 2017: What about fiscal and regulatory policy in 2017?
Question #2 for 2017: How much will the economy grow in 2017?
Question #3 for 2017: Will job creation slow further in 2017?
Question #4 for 2017: What will the unemployment rate be in December 2017?
Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
Question #7 for 2017: How much will wages increase in 2017?
Question #8 for 2017: How much will Residential Investment increase?
Question #9 for 2017: What will happen with house prices in 2017?
Question #10 for 2017: Will housing inventory increase or decrease in 2017?