| The 2017 economic growth forecast increased one-tenth from the prior forecast to 2.5 percent due to the government’s upgraded third quarter GDP growth estimate and an expected solid fourth quarter finish, according to the Fannie Mae Economic & Strategic Research (ESR) Group’s December 2017 Economic and Housing Outlook.
Consumer demand and investment spending growth are expected to pick up in the current quarter, offset partly by slowing inventory investment and the first drag from trade in a year. Business equipment investment, in particular, grew at its fastest pace in three years during the third quarter, hastened in part by a flurry of deregulation activity, a declining dollar and strengthening economic growth abroad, the report said.
With tax legislation potentially passing by year end, the ESR Group sees upside risk to growth but will need to review the final bill before assessing the impact. Absent tax reform, 2018 GDP growth is expected to decelerate to 2.1 percent. Consumer demand is expected to continue to sustain near-term growth as a strong labor market and surging stock and house prices helped push household net worth to a 70-plus year high.
On the heels of the Federal Open Market Committee’s recent decision to raise interest rates for the third time in 2017, the ESR Group predicts two additional hikes in 2018, with further tightening possible based on the potential impact of tax reform on the labor market and inflation.
“The economy appears poised to finish 2017 on a cheerful note as fundamentals increasingly align with strong business and consumer sentiment. Domestic demand is building momentum, job growth is solid and broad-based, and consumer spending looks likely to strengthen,” Doug Duncan, Fannie Mae chief economist, said in a statement. “If enacted, tax reform should be a net positive for GDP growth next year, which we currently have pegged at a modest 2.1 percent in the absence of tax law changes. As expected, the Fed raised rates once more last week and, barring inflationary pressure, is expected to tighten two more times in 2018. Finally, the housing market continues its upward grind, as it struggles to balance strong demand and house price appreciation with inventory shortages and affordability concerns.”
