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posted on 29 January 2017

U.S. Economy Is Forecasted To Grow At A Pace Slightly Above Average In 2017

from the Chicago Fed

-- this post authored by William A. Straussand Thomas Haasl

According to participants in the Chicago Fed’s annual Economic Outlook Symposium, the U.S. economy is forecasted to grow at a pace slightly above average in 2017, with inflation moving higher and the unemployment rate remaining low.

The Federal Reserve Bank of Chicago held its 30th annual Economic Outlook Symposium (EOS) on December 2, 2016. More than 100 economists and analysts from business, academia, and government attended the conference. This Chicago Fed Letter reviews the forecasts for 2016 from the previous EOS, and then analyzes the forecasts for 2017 (see figure 1) and summarizes the presentations from the most recent EOS.

The U.S. economy entered the eighth year of its expansion in the third quarter of 2016. While the nation’s real gross domestic product (GDP) is at its highest level in history, the rate of economic growth since the end of the Great Recession in mid-2009 has been very restrained. During the 29 quarters following the second quarter of 2009, the annualized rate of real GDP growth was 2.1% - just slightly above what is considered the long-term rate of growth for the U.S. economy. Additionally, the annualized rate of real GDP growth over the first three quarters of 2016 was 0.2 percentage points below the average of the current expansion.

The biggest drags on economic growth during 2016 were weak investment (both business and residential) and government spending. Real business fixed investment decreased at an annualized rate of 0.4% in the first three quarters of 2016. Possible culprits for this anemic performance were moderate growth in the overall economy; excess capacity remaining in the industrial sector; the collapse of energy prices lowering investment in this sector; the strong international value of the U.S. dollar; and economic uncertainty during this past presidential election year. Real residential investment decreased at an annualized rate of 1.6% during the first three quarters of 2016, after increasing at an annualized rate of 9.4% between the third quarter of 2010 and the final quarter of 2015. Even though residential spending declined, the annualized rate of housing starts increased to 1.16 million units for the first 11 months of 2016 - up 5.4% relative to the same period in 2015. Real government spending grew at an annualized rate of 0.2% during the first three quarters of 2016 - well below the 1.2% it has averaged over the past 20 years.

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