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Economic Forecasts

GDP to Climb 2.9% This Year

Kiplinger's latest forecast for the GDP growth rate

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GDP 2.9% pace in '18, up from 2.3% in '17 More »
Jobs A tight labor market will make hiring more difficult More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.4% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in October More »
Housing Price growth: 5.0% by end of '18 More »
Retail sales Growing 4.9% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

The nation’s gross domestic product expanded at a nearly 4% rate in the second quarter, up from the first quarter’s 2.0%, according to estimates. After taking the winter off, consumers rushed back this spring, perhaps because their tax bills shrank. Consumers should up their spending for the rest of the year 3.0% or more. Single-family housing construction advanced solidly in April and May, indicating a good year for housing. Exports advanced strongly as well, though this may not continue in the second half of the year because of new trade tariffs.

GDP should increase 2.9% for the year, after 2017’s 2.3% pace. Tax cuts are boosting GDP through rising consumer spending and stronger business investment. Higher wages, expanding household income, job gains (albeit smaller than before) and credit utilization are also underpinning consumer spending. Housing construction should pound ahead. However, auto sales will downshift. A possible trade war is growth’s biggest threat. Although any slowdown in international trade would likely be small, the uncertainties could create knock-on effects that ding business investment.

Tax cuts for both businesses and individuals should goose the economy going forward, but likely not as much as President Trump would like. Improving business profitability should generate capital spending, but some of the bigger profits will go toward stock buybacks and shareholder returns. Increased wealth and burgeoning home values will encourage consumers to spend a little more, though recent uncertainties in the stock market could scale that back. Tax cuts for individuals will help, but wealthier taxpayers, who tend to save more, are likely benefiting the most.

Because of strengthening GDP and inflation, look for the Federal Reserve to hike interest rates twice more this year, in September and December. With the change in Federal Reserve Board members, there are now definitely more pro-rate-hike board members (who are worried about a potential rise in inflation) than those who are against.

See Also: For Business Owners, It's a Seller's Market

Source: Department of Commerce: GDP Data