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Economic Forecasts

GDP Growing Faster in Second Quarter

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 2.6% 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 $65 to $70 per barrel in July 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 »

Gross domestic product is growing at least 3% in the second quarter, up from the first quarter’s 2.2%. After a winter lull, consumers rushed back this spring, perhaps because their tax bills shrank. That should boost second-quarter growth well above 3%. Growth for the rest of the year should also reach 3.0% or higher. Businesses are stockpiling inventory in anticipation. Spending on new housing construction advanced solidly in April, indicating a good year for housing.

GDP should solidly bump up to 2.9% this year after 2017’s 2.3% pace. Tax cuts will boost 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. Manufacturers will benefit from stronger exports as the global economy improves. However, auto sales will downshift. A minor trade war is growth’s biggest threat. While 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, look for the Federal Reserve to hike interest rates twice more this year, in June and either September or 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. The main discussion will be whether to raise in both September and December or just once.

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.

Look for the Federal Reserve to hike interest rates twice more this year, in June and December. With the change in Federal Reserve Board members, there are now definitely more pro-rate hike board members than those who are against. The main discussion may be whether to raise rates in September as well.

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

Source: Department of Commerce: GDP Data