Over the next five years, the US economy is likely to experience relatively healthy growth in employment, wage rate increases, and productivity gains. The US economy is essentially at full employment, and job gains are setting the stage for continued growth, particularly as long as inflation remains in check. Recent Federal Reserve statements have indicated a “wait-and-see approach” to future interest rate increases, with timing dependent on trends in the economy.
A positive development is the apparent de-escalation of trade issues with China and progress toward an agreement to replace the North American Free Trade Agreement (NAFTA) which has been in place for about 25 years. While a deal with China has not yet been reached, there are at least signs of a lessening likelihood of a trade war and a greater willingness for meaningful discussion. The US, Mexico, and Canada agreed to the US-Mexico-Canada Agreement (USMCA) last fall, but it has not yet been finalized or agreed upon by Congress and may face challenges. Trade benefits the US economy, and the extent of progress toward free trade agreements is an important determinant of the rate of expansion. The recent threat to impose tariffs on foreign automobiles would be counterproductive and a setback.
A downside risk to US economic growth is the lack of progress in Washington toward a sustainable solution to the federal budget and other important issues. On an international basis, the ongoing drama regarding Brexit could cause slowing in the United Kingdom and elsewhere. There are also signals of diminished growth prospects for several major economies around the world, and the rate of expansion of the Chinese economy is slowing markedly. In addition, the potential for military conflict in various regions of the globe would certainly slow growth in the US and elsewhere if any of them escalate significantly.
On balance, the US economy is expected to see moderate growth during the next five years. The Perryman Group projects that over the 2018 to 2023 period, real gross product is likely to expand from the current level of an estimated $18.6 trillion to $21.1 trillion, a 2.61% annual rate of growth. Employment is forecast to grow by 11.6 million to reach 160.6 million in 2023 (a 1.51% annual rate of growth). Inflation is expected to remain fairly low, while interest rates begin to rise.
The US economy is well positioned for growth, with an unparalleled capacity for innovation. In addition, expanded trade agreements and rising energy exports have the potential to enhance future performance, despite global economies showing signs of slowing. The Perryman Group’s latest forecast calls for general, modest expansion over the next five years and beyond.