The Economic Situation: A Quarterly Commentary on the Economy

Demand for US goods has weakened, owing primarily to slow growth in China and the developing world. A strong dollar generated by European and US monetary policy reduces net exports. That adds another negative element when GDP growth is calculated. These external forces play across a domestic economy that is chastened by growing regulatory constraints, uncertain immigration policy, calls for higher minimum wages, and adjustments generated by dramatically lower energy and commodity prices. Through it all, US consumers form the locomotive pulling the economy forward. Final consumption of goods and services, which includes healthier housing and other construction, keeps the economy chugging, though only at a moderate level.

Putting all this in the pot and stirring yields a 2016 forecast that calls for 2.4 percent to 2.6 percent real GDP growth, with an occasional bump across the 3 percent line. Put another way: if the 2015 economy produced happiness in your neighborhood, you should be happy with 2016. Lagging global demand for commodities will keep a lid on inflation, but will not counter the effects of tighter labor market constraints. The year ahead should bring additional gains in wages, especially in the services sector. Overall inflation will begin to nudge higher, but will not likely break through the 2.5 percent level.

 

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