Economists Expect Slower US Growth

Forecasts for US economic growth are coming in slightly lower after a weak first quarter, according to a survey of business economists released Monday.

The National Association for Business Economists says it’s expecting gross domestic product growth of 2.2% this year and 2.4% in 2018. Those forecasts are down 0.1 percentage points from a survey in March. The survey is based on responses from 52 professional forecasters, AP reported.

The gross domestic product—the broadest gauge of the economy—expanded in the January-March quarter at a 1.2% annual rate. That was better than initially forecast, but still weak. Unseasonably warm weather was one reason for the slow growth, since it limited spending on utilities.

Economists forecast GDP growth will rise 3.1% in the April-June period and 2.5% in the second half of the year. They’re forecasting solid hiring and a low, 4.5% unemployment rate, which should help boost consumer spending. Inflation also is expected to remain in check.

Most of the economists surveyed believe President Donald Trump will enact an infrastructure plan and cut corporate and individual taxes before the end of 2018. That will have a positive impact on economic growth, but likely not until 2018, the survey said.

There are downside risks. Just over one-third of the panelists say trade protectionism, a strong US dollar and higher interest rates could pose a risk to the economy in 2018. But 60% say there’s more chance of an upside risk thanks to expected corporate tax reform, individual tax cuts and infrastructure spending.

Nearly all the panelists—95%—think the chance of a recession this year is 25% or less.

  Labor Market Losing Momentum

US job growth slowed in May and employment gains in the prior two months were not as strong as previously reported, suggesting the labor market was losing momentum despite the unemployment rate falling to a 16-year low of 4.3%, AAP reported.

Nonfarm payrolls increased 138,000 in May as the manufacturing, government and retail sectors lost jobs, the Labor Department said on Friday. The economy created 66,000 fewer jobs than previously reported in March and April.

Last month’s job gains could still be sufficient for the Federal Reserve to raise interest rates at its June 13-14 policy meeting. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

“While the message was a little muddied today, the evidence generally suggests the labor market is cyclically tightening, and the Fed will need to continue to lean against that,” said Michael Feroli, an economist at JPMorgan in New York.

“We still believe it is very likely that the Fed will hike later this month. Perhaps more in question is the signal coming out of that meeting regarding subsequent hikes.”

Details of the employment report were weak. Though the unemployment rate fell one-tenth of a percentage point to its lowest level since May 2001, that was because 429,000 people dropped out of the labor force.

The survey of households from which the unemployment rate is derived also showed a drop in employment. The jobless rate has declined five-tenths of a percentage point this year.

Average hourly earnings rose 4 cents or 0.2% in May after a similar gain in April, leaving the year-on-year increase in wages at 2.5%.

Job growth has decelerated from the 181,000 monthly average over the past 12 months as the labor market nears full employment. There is growing anecdotal evidence of companies struggling to find qualified workers.

Economists also believe that companies might be holding off hiring amid worries political scandals engulfing Trump could imperil his economic agenda, including tax cuts and infrastructure spending.

“Political uncertainty in Washington is another factor holding back the job market,” said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo. “The probability that any of the Trump stimulus would become reality has decreased significantly in recent weeks.”