Economists’ Outlook: More Job Growth, Rising Wages

WASHINGTON – The economy will continue to add jobs this year and next, the difference being that real wages will rise as well, say the chief economists of 17 major banks.

The chief economists comprise the Economic Advisory Committee of the American Bankers Association, which met here last week.

They see the U.S. economy continuing to expand steadily through 2018, creating more jobs and resulting in higher wages. The economy should add 1.9 million jobs this year and 1.8 million in 2018.

“The economy has been growing seven years and should continue to grow moderately over the next two years,” said Christopher Probyn, chairman of the ABA economic advisory committee and chief economist for State Street Global Advisors, Boston.

Probyn and his colleagues see inflation-adjusted Gross Domestic Product – the economy – growing 2.1% this year and 2.3% next year, up from 2.0% in 2016. That growth could be even greater depending on the level of economic stimulus Congress might pass, especially to rebuild and replace infrastructure.

The unemployment rate should hold at 4.6% this year and drop to 4.5% in 2018, the economists forecast.

Consumer spending, housing and business investment will spur the U.S. economy, they say. Holding it back will be weak global demand and a strong dollar. A strong dollar dampens exports.

The Federal Open Markets Committee, better known as The Fed, raised interest rates in December and that will raise mortgage rates. Despite that hike, and the two- to three hikes expected this year, housing starts will pick up by 1.2 million this year and 1.3 million next year. (A year ago, economists predicted at least two hikes, possibly three, during 2016.)

The economists expect the Fed to raise rates at least twice, maybe three times, this year (to 1.00% or 1.25%) and three times in 2018 (to 1.75% or 2.00%).

The incoming Trump administration causes “an unusual degree of uncertainty to the committee’s [forecast] given the lack of specificity about the evolution of fiscal and trade policy,” the ABA statement said.

Cuts in personal and business taxes, along with more spending on infrastructure, could spur growth over the next two years, the economists said, “but given that the economy is close to or at full employment, also raise inflation and longer-term bond yields.”

Cuts in taxes and the anticipated fiscal stimulus could cause the Fed to take more aggressive steps to prevent the economy from overheating.

With tight labor markets, labor will cost more, driving wages up and inflation, held in check at 1.5% last year, to 2.2% this year.

Banks remain healthy as reflected by loan delinquency and charge-off rates at historic lows and likely to remain there. The chief economists see consumer and commercial lending growing 7.2% this year and 6.0% in 2018.

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