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10 Predictions For 2018- US Real GDP Will Grow At 4%
It is something that hasn’t been done in over a decade and has been left for fantasy by many economists, but I don’t buy it. In fact, it wasn’t long ago, that I said the US GDP could grow at 3 percent when most were saying it couldn’t be. The last two quarterly GDP reading have suggested an annual pace of GDP growth at over 3 percent. That leads us to Prediction #9- US Real GDP Will Grow At 4 Percent in 2018.
I’m predicting GDP will grow at 4 percent on a year-over-year basis, not an annualized based, too. I’m going to take the hard less traveled road because that how impactful I think the pending tax reform bill will be to the US economy. It will unleash economic growth in a way not seen since the 1980’s and 1990’s. We have already started to see the benefits of deregulation taking hold.
We have seen a surge of jobs in mining and manufacturing over the course of the past year.
We have also started to see an acceleration in private employment payroll readings, as measured by ADP. The chart below shows the separation that has occurred between y/y growth in the ADP reading private sector employment and the Bureau of Labor Statistics (BLS) reading. The turn higher in private payroll readings is likely a leading indicator of an accelerating job market.
We also have seen a significant improvement in the measurement for the “slack” in the labor force, or the U6 reading of unemployment, fall from 9.4 percent in January to 7.9 percent in the most recent reading. The good news is that there is room for further improvement, the level was as a low as 6.8 percent in October of 2000.
Real Potential GDP growth had historically tracked at a rate of growth of 3 to 4 percent year, until 2005, when the rate of expected potential GDP growth began to slow to a pace in the mid 2 percent rate. The good news is the output gap, nominal potential GDP minus nominal real GDP has now closed, and in fact, real GDP is exceeding potential GDP.
Historically, when this has happened, it has led to annualized GDP growth of greater than 4 percent on most occasions.
With all the charts and assumptions, it could just come down to some common sense. The US economy has a nominal GDP reading of $17.1 trillion, and would merely need to grow an extra $340 billion a year. It doesn’t seem so complicated when you think of it that way.
Tax reform will unlock some of that growth, and that will have a multiplier effect. 4 percent GDP growth here we come.
The purpose of the 10 predictions is for fun and to think about the year to come. It helps to organize thoughts and think about potential themes and trends that could develop. See our 10 predictions for 2017 and judge for yourself how we did.
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Tags: #GDP #4% #Predictions_For_2018, #Growth #Economy