US Economic Forecast: 2016 Q1

After six years of waiting for productivity to pick up, we're reconciled to a new normal of slower US growth. While a recession remains unlikely, question marks in Europe and China—and an expensive dollar—will likely temper any boom in the near future.

USEF: Q1 2016

After six years of waiting for productivity to pick up, we’re reconciled to a new normal of slower US growth. While a recession remains unlikely, question marks in Europe and China—and an expensive dollar—will likely temper any boom in the near future.

William McChesney Martin, chairman of the Federal Reserve in the 1950s and ’60s, once characterized the Fed’s job as being ready “to take away the punch bowl just when the party gets going.” Since the recession ended in 2009, everybody has been waiting for the party to get started. But more and more, it looks as though the punch bowl might never get passed around—or, if it does, that nobody remembered to spike the punch. This forecast, then, represents a substantial shift from Deloitte’s previous optimistic views. Those views were founded on the past behavior of the US economy, optimism about foreign economic and financial conditions, and a belief that US productivity growth would return to previous levels. Each of these beliefs has become harder and harder to hold with each new piece of evidence that lessons of the past may have more limited value than expected.

Typically, fast growth has accompanied past US recoveries, and since 2009, most economists have been looking for that pattern to materialize. There always seems to be a fresh headwind, from the recurring financial crisis in Europe to substantial fiscal drag in the United States. In addition, the US government has played a larger role in the slow recovery than many people realize: If cuts in government spending hadn’t subtracted half a percentage point from growth in 2011–13 (instead of adding a quarter to half a percentage point, as in the past), GDP growth would have been faster, and the unemployment rate would have fallen faster, both at rates more consistent with historical experience.

Government is now set to add modestly to growth . . . but the global economy is refusing to cooperate. Not only does Europe remain weak—China’s slowdown has been hitting commodity-producing developing nations hard, which in turn has reduced demand for US exports to those countries. And the accompanying financial market turmoil has sent investors scrambling for safe dollar assets. The resulting rise in the dollar—up 10 percent over the past year—threatens to undermine US manufacturers’ otherwise highly competitive position. While much of the weakness in US manufacturing so far has been in energy-related areas, the expensive dollar threatens to spread the problem to the rest of the manufacturing sector.

But the most important problem facing the US economy is the slowdown in productivity growth. Economists often struggle to understand productivity growth, but evidence is accumulating that something began happening in the early 2000s:1 Productivity slowed—and not just in the United States but around the world. Deloitte’s previous forecasts have been premised on annual productivity growth rebounding to the 1990s level of 1.5 percent or more. But with still no sign of that happening, our new forecast assumes productivity will grow at 0.5 to 1.0 percent annually. With labor force growth dropping to below 1 percent, that leaves long-run potential annual growth at below 2 percent. The last three years in our forecast tables show GDP growth at below 2 percent.

In short: A weak global economy and continuing low productivity growth lead us to temper our longstanding optimism. The likelihood of a recession remains low, but the highest probability is that the slow, unsatisfactory growth of the post-recession period is the US economy’s new normal. As the Fed is beginning to discover, there may be little reason to shut down a party that never really got going.

Figure 1

Scenarios

There are plenty of reasons why actual economic growth might be better or worse than Deloitte’s forecasted baseline. Our forecast, therefore, includes four different scenarios to illustrate possible future paths of the US economy. Deloitte’s forecasting team places subjective probabilities on each of the four scenarios.

The baseline (55 percent probability): Weak foreign demand weighs on growth. US domestic demand is strong enough to provide employment for workers returning to the labor force for a couple of years, and the unemployment rate remains about 5 percent. GDP annual growth hits a maximum of 2.5 percent. In the medium term, low productivity growth puts a ceiling on the economy, and by 2019 US GDP growth is below 2 percent, despite the fact that the labor market is at full employment. Inflation remains subdued.

Recession (5 percent): China’s financial problems create a drag on its economy, and growth slows substantially. This triggers a financial panic in East Asia, as investors in countries connected by supply chains to China seek to reduce risk. Volatility in Europe increases, as does market valuation of the riskiness of euro assets, adding to the panic. Several US financial institutions find themselves long on euro- and China-related assets at the wrong time. The result: a global financial panic. Capital flows into the United States to avoid risk in Europe and Asia, and the US dollar climbs even higher. The financial panic throws the US economy into recession. Timely Fed action offsets the financial crisis after several months, leading to relatively fast growth during the recovery.

Slower growth (25 percent): Weak economic conditions abroad, financial turmoil, and flight from risky assets cuts demand below the level required for labor market equilibrium. Although the participation rate climbs slightly, hoped-for jobs disappear and the unemployment rate rises. Despite that increase, the Fed slowly raises interest rates, helping to keep a cap on inflation. GDP growth stays below 2 percent for the foreseeable future.

Coordinated global boom (15 percent): Terrorism and refugee problems prove to be only minor obstacles for European economies, and the continent finally begins to pull out of the doldrums. Emerging markets also pick up momentum as China resolves its financial problems, and India and Brazil start to adopt more reforms. Capital flows out of the United States and into Europe and the developing world, pushing the dollar lower, further enhancing US exports. Lower US energy prices make the United States even more competitive. At home, the resolution of budget issues at both the federal and state levels allows more money to flow into infrastructure investment, creating short-term demand and long-term productivity growth.

ScenariosSectors

Consumers

Ah, the US consumer—longtime supporter of the global economy, and still surprisingly resilient. Of course, consumers can’t spend money they don’t have, and their incomes largely depend on having jobs. Job growth has picked up, with wages showing faint signs of rising too. Despite that, higher saving rates mean that US consumers have started sending a message to the rest of the world: They cannot continue to play Atlas, holding the global economy on their shoulders as they did in the 2000s. Our forecast expects the US savings rate to settle in at just over 5 percent; that is consistent with consumers’ behavior in the 1990s.

US households face some obstacles in their pursuit of the good life. They have (mostly) recovered from the overborrowing of the 2000s, though too many remain “underwater,” with houses worth less than the household owes on the attached mortgage. And there is the problem of growing income and wealth inequality. (For a brief inequality discussion, see Ira Kalish’s Deloitte Review article “Mind the gap.”2 ) Recent presidential debates—and the commentary around them, addressing working-class concerns and fears—suggest that inequality will be a focus of policy in the future.

Many US consumers spent the 1990s and ’00s trying to maintain spending even as incomes stagnated. After all, excitable pundits kept assuring them that the technology transforming their lives would soon—any day now—make them all wealthy. But now they are wiser (and older, which is another problem, as many Baby Boomers face imminent retirement with inadequate savings). As long as a large share of the gains from technology and other economic improvements flows to a relatively small number of households, overall US consumer spending is likely to remain relatively restrained.

Consumer news

Real consumer expenditures rose an average of less than 0.2 percent per month in the last three months of 2015. Real personal income rose a bit faster—an average rate of over 0.2 percent. The savings rate rose to 5.5 percent by year’s end.

Although headline retail sales have appeared soft (growing just 0.1 percent in December and January), retailers are doing better than the headline numbers suggest. Sales at most other types of stores have grown at a satisfactory rate, but plunging gasoline prices have held down sales at gasoline stations, which have fallen every month since July. This has kept the headline retail sales figure weaker than the actual underlying retail demand.

Consumer confidence has remained high though flat—at high levels—over the past few months. The continued strength in labor markets has likely overshadowed any impact of the financial market’s problems.

Figure 2

Housing

Every year, untold thousands of young Americans abandon the nest, happy to leave home and start their own households. But more than usual stayed put during the recession: The number of households didn’t grow nearly enough to account for all the newly minted young adults. We expect those young adults would prefer to live on their own and create new households; as the economy recovers, they will likely do exactly that—as previous generations have.

This means some positive fundamentals for housing construction in the short run. Since 2008, the United States has been building fewer new housing units than the population would normally require; in fact, housing construction was hit so hard that the oversupply turned into an undersupply. But the hole isn’t as large as you might think. Several factors offset each other:

  1. If household size returns to mid-2000s levels, we would need an additional 3.2 million units.
  2. On the other hand, household vacancy rates are much higher than normal. Vacancy returning to normal would make available an additional 2.5 million units—which would fill 78 percent of the pent-up demand for housing units.
  3. But are the existing vacant houses in the right place or condition, or are they the right type, for that pent-up demand? The future of housing may look very different than in the past. Growth in new housing construction has been concentrated in multifamily units. If that continues, we may find it is related to young buyers’ growing reluctance to settle in existing single-family units.

In developing our housing forecast, we assumed that the demand for housing (in the form of the average household’s size decreasing) picks up in 2016, vacancy rates gradually drop, and household depreciation begins falling after new renters and buyers remove about 2.5 million housing units from the nation’s housing surplus. Slowing population growth suggests that we will have a short-lived housing boom in which starts hit the 1.5–1.6 million level, followed by a period of contraction until starts reach the level of long-run demand. We estimate this to be just 1.2 million units in the medium term. Housing will likely contribute to GDP growth in 2016 but subtract from GDP growth by 2018 as the pent-up demand goes away. In the long run, the slowing population suggests that housing will not be a growth sector (although specific segments, such as old-age housing, might well be very strong).

Tight housing credit may be a key culprit in keeping individual purchases of single-family houses low, although there are some signs that credit is loosening. Young adults also seem to be showing a preference for living in urban rather than suburban communities. There may be some significant changes from the post–World War II model of single-family home ownership in store.

Housing news

Housing permits have been stable at about 1.2 million units over the past few months. This is enough to meet the long-run demand but not enough to fill the deficit left by low construction levels from 2008 to 2014. Multiunit permits have been growing faster than single-family permits, and are now at the pre-recession level.

Contract interest rates for conventional mortgages remained at just about 3.9 percent through January. Rates remain very low (although not quite as low as in late 2012 and early 2013). House prices continue to slowly rise and were up 5.4 percent (according to the Case-Shiller measure) over the 12 months ending in November.

Figure 3

Business investment

Since the recession’s end, many have lamented the impact of political uncertainty on business decisions—specifically, on investment. In fact, relative to GDP, business investment has been one of this recovery’s better-performing sectors. With strong profit growth, however, businesses might well have invested even more. Many businesses are likely still waiting for assurance that they will have customers; once those customers return, there may be more reason to ramp up investment. Watch what businesses do, not what they say.

Other, more concrete factors are also weighing down investment. The rising dollar is not only making US companies less competitive—it’s cutting overseas earnings valued in dollars and therefore reducing margins for US multinationals. And China’s slowing growth is exposing global excess capacity in many industries. In our baseline scenario, these factors help to moderate growth and demand. In the “slower growth” scenario, they become important factors in keeping the US economy below potential growth.

The fall in oil prices is a complicating factor in this positive outlook. Oil and gas extraction accounted for 6 percent of all nonresidential fixed investment in 2013. That’s a hefty amount (considerably larger than the sector’s value-added share), so shutting down new US oil exploration will have an immediate impact on investment. However, the big drop in the price of oil will surely eventually affect the 94 percent of business investment that is unrelated to oil and gas extraction.

Business investment news

Real business fixed investment fell at a 1.8 percent annual rate in the fourth quarter (according to the first GDP release). Both equipment investment and structures investment fell, while intellectual property investment rose a subpar 1.6 percent.

Nondefense capital-goods shipments—the best high-frequency measure of equipment spending—fell in four of the five months ending in December. The less-volatile category of capital goods less aircraft fell in two of the last three months and rose in December by only a small amount.

Private nonresidential construction fell in December by 2.1 percent and was down in three of the last four months. Commercial and manufacturing construction continue to slow, but office construction rose over 2 percent in October and November before falling by just under 2 percent in December.

Interest rates remained stable, with AAA corporate bonds paying close to 4 percent for the past six months. Stock indices fell substantially in January and are down so far for 2016. Despite this, the cost of capital remains quite low, and profits remain at near-record levels of national income. (See figure 4.)

Figure 4

Foreign trade

Globally, the United States should be highly competitive. US unit labor costs have been falling and remain low despite the slowdown in productivity (as wages are stagnant). In a well-functioning global economy, the need for capital in the developing world should help to keep the dollar at a reasonable level, and the international price of US goods would be very attractive.

The global economy, alas, is not functioning well. Falling US unit labor costs have been more than offset by a rising US dollar, as global investors seek security in US assets. And weak demand abroad makes the job of American exporters even harder.

All of this amounts to a substantial headwind to US GDP growth. The baseline forecast shows real export growth of around 2 percent for 2016 and 2017, picking up to 5–6 percent afterward. The current account starts falling relative to GDP in 2018 but remains over 2 percent for the entire forecast. Until growth in Europe picks up, it is hard to see trade contributing to US GDP growth.

Foreign trade news

US goods exports fell in every month of the fourth quarter. Imports were flat in the last two months of the year after falling 2 percent in October. The trade balance rose a bit but, at $62 billion in December, remained below the August level.

The trade-weighted dollar rose about 1.5 percent per month in the fourth quarter. The Canadian dollar is now at CAD 1.42 per USD, around the highest level in a decade. The euro appears to have stabilized at about USD $1.10 after the most recent Greek agreement, but this is quite low, historically. The yen has depreciated to about JPY 120 to the dollar.

European industrial production fell in November and December, contributing to concerns that Europe’s economy is once again stalling. Increased uncertainty over the Greek debt, fallout from the slowdown in China, and the refugee crisis and terrorism are likely weighing down economic activity.

China reported real GDP growth of 6.8 percent over the previous year in Q4—a surprisingly strong number that hardly ended debate over whether the country’s economy is slowing. Some analysts focus on signs of strength in China’s consumer and service sectors, suggesting a long-awaited adjustment to becoming a consumer-driven economy. Others point to indications that official Chinese figures may be too high. China’s future remains a large risk for the global economy.

Figure 5

Government

US government spending on goods and services has been stagnant, and we expect little change in the next few years. That’s actually an improvement from the 2010–13 period, when government cutbacks pulled down economic growth. In 2016, we will actually see a modest contribution of federal spending to GDP. That’s the result of the recent budget agreement, which raised caps on both defense and nondefense purchases. However, pressures from entitlement spending will keep the lid on future increases in federal government demand.

State and local governments are no longer cutting spending. They are getting some good revenue news from rising house prices and growing employment, but plunging oil prices could destabilize the budgets of several states with large oil-production sectors, and pesky pension liabilities continue to restrain state and local spending, The Congressional Budget Office estimates a shortfall of $2–3 trillion in state and local pension funding, and the need to fund these liabilities will likely keep a lid on state and local spending growth.

Government news

The final result for FY 2015 showed a federal deficit of $439 billion, down $44 billion from FY 2014. While outlays rose 5.3 percent, revenues were up 7.6 percent. In the first four months of the new fiscal year, receipts were up 3 percent, while outlays were down slightly, partly the result of a timing issue. The overall deficit was $160 billion lower than in the same period of the previous fiscal year, but the Congressional Budget Office estimates that, without the timing issues, the deficit would have been about $10 billion higher.

The budget deal should have taken fighting about the budget—and the debt ceiling—off the table until after the 2016 election. (Some members of Congress are making noises about undoing the deal; this is possible because next fiscal year’s appropriations bills need to be passed during the summer.) The agreement allows for a $50 billion rise in spending in FY 2016, which makes it likely that federal spending will contribute positively to GDP growth over the next year.

Government employment remained flat in the fourth quarter of 2015, with education employment by state and local governments falling very slightly.

Figure 6

Labor markets

If the US economy is to produce more goods and services, it will likely need more workers, and the currently moderate wage growth is encouraging firms to increase capacity by hiring workers. However, many potential workers remain out of the labor force: They left in 2009, when the labor market was terrible, and conditions apparently are still not good enough to entice them to return. Accelerating production will carry with it an eventual acceleration in demand for workers, along with a welcome mild rise in wages. That should help to bring people back into the labor force.

But a great many people have been out of work for a long time—long enough that their basic work skills may be eroding. When the labor market tightens, will those people be employable? Deloitte’s forecast team remains optimistic that improvements in the labor market will eventually prove attractive to potential workers, and labor force participation will pick up.

Deloitte labor force projections

In the near term, the overall participation rate will likely be affected by two offsetting trends. The aging of the population—in particular, early Baby Boom cohorts reaching retirement age in the next five years—will push down the participation rate. However, the poor labor market has driven down participation rates for younger workers as well, and the economic improvement in the forecast will almost certainly entice many people in these middle-aged and, especially, younger cohorts to return to the labor market.

The labor force projection in this forecast assumes that participation rates for the over-60s will remain at current levels and that participation rates for the under-30s will return to their 1997–2000 average.3


Labor market news

Monthly initial claims for unemployment insurance are holding steady, in the 270,000 range. Job openings picked up in December and, at 5.6 million, are at the highest level recorded in this data. Quits (voluntary separations) are rising and now are over 3 million monthly. Quits are a good indication of how workers view the labor market, and the high level of quits indicates that labor demand appears to remain strong.

Payroll employment growth dipped to an average rate of 151,000 in January, but the monthly average remains above 200,000. The unemployment rate continued falling and in January was just 4.9 percent. The participation rate rose slightly but at 62.7 percent is considerably lower than the average rate before the financial crisis.

Figure 7

Financial markets

Interest rates are among the most difficult economic variables to forecast because movements depend on news—and if we knew it ahead of time, it wouldn’t be news. The Deloitte interest-rate forecast is designed to show a path for interest rates consistent with the forecast for the real economy. But the potential risk for different interest-rate movements is higher here than in other parts of our forecast.

The forecast sees both long- and short-term interest rates headed up—maybe not this week, or this month, but sometime in the future. The Fed may delay raising rates, and we now predict just one tightening this year. The economy’s return to full employment will mean a return to “normal” short-term interest rates, though relatively slow growth will keep a lid on longer rates in the medium term. The 10-year bond rate is set to rise but remain at relatively low levels throughout the forecast period.

But the most sophisticated observers of financial markets understand the most important thing about interest rates: They fluctuate. This is the sector that is most likely to surprise us.

Financial market news

The Fed hiked the target Fed funds rate 25 basis points at the December meeting. Despite being widely anticipated, this appears to have set off another round of financial market volatility. Risk spreads have been rising: Although the AAA spread over the T-bill was steady at about 1.2 percent, the junk-bond spread over AAA rose to 7 percent in January. Many observers have pointed out that the rise in risk spreads amounts to the equivalent of a significant monetary tightening.

Stock prices fell 6.6 percent in the first month of 2016. The stock market is down about 8 percent from the May peak (using the S&P 500 index), enough to elicit some concerns about the impact on the wider economy.

Despite the turmoil in financial markets, bank lending remained healthy, with C&I loans continuing to grow about 10 percent over the previous year’s level.

Figure 8

Prices

Remember those folks who were convinced that the Fed’s actions in 2009 would spark runaway inflation? Likely, they’d rather you didn’t. Prices have been the most boring part of forecasting for the past six years, and there is no reason to think that’s going to change.

Inflation is hard to come by when the labor market—which accounts for two-thirds of all costs in the US economy—has been so slack. Workers haven’t had leverage to obtain higher wages when prices go up, and businesses lack the pricing power to cover higher costs. Instead, shocks from higher energy or food prices have dissipated into the ether rather than being translated into sustained, higher inflation.

That means that inflation will likely remain tame at least until the economy reaches full employment. Although employment growth in the past couple of years has whittled away at the potential employment surplus, it’s still pretty large—and bigger than the unemployment rate indicates. So don’t hold your breath waiting for the return of the 1970s. Bell bottoms, disco, and high inflation are likely all safely in our past (for now).

Price news

The overall CPI is up just 1.3 percent over the previous year, mainly because of falling energy prices. Core CPI has been growing more quickly. At 2.2 percent, it is currently even a little above the Fed’s target.

The final demand producer price index was pretty much flat, but the core PPI accelerated in the fourth quarter.

Figure 9

Appendix: Deloitte economic forecast

Table 1. Deloitte US forecast: Baseline

Percent change, year over year unless otherwise noted.

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

 

History

Forecast

GDP and components

Real GDP

2.5

1.6

2.2

1.5

2.4

2.4

2.2

2.5

1.9

1.6

1.7

Real consumer spending

1.9

2.3

1.5

1.7

2.7

3.1

2.5

2.8

2.2

1.5

1.5

Real consumer spending, durable goods

6.1

6.1

7.4

5.8

5.9

6.0

4.2

4.6

3.5

2.2

2.0

Real consumer spending, nondurable goods

2.2

1.8

0.6

1.9

2.1

2.7

2.5

2.2

1.7

1.3

1.3

Real consumer spending, services

1.2

1.8

0.8

1.0

2.4

2.8

2.2

2.7

2.1

1.5

1.4

Real investment in private housing

-2.5

0.6

13.5

9.5

1.8

8.7

17.3

10.6

-1.8

-12.6

-7.7

Real fixed business investment

2.5

7.7

9.0

3.0

6.2

2.9

2.6

3.8

3.7

4.3

4.1

Real inventory accumulation

58.0

38.0

55.0

61.0

68.0

95.0

49.0

40.0

30.0

68.0

68.0

Real exports of goods and services

11.9

6.9

3.4

2.8

3.4

1.1

1.1

2.2

4.1

5.0

5.6

Real imports of goods and services

12.7

5.5

2.2

1.1

3.8

5.1

2.8

4.0

3.1

2.5

2.8

Real government consumption and investment

0.1

-3.0

-1.9

-3.0

-0.6

0.8

0.8

0.4

0.4

0.5

0.7

Real federal government consumption and investment

4.3

-2.7

-1.9

-5.7

-2.4

-0.3

0.3

-0.7

-0.8

-0.6

0.2

Real state and local government consumption and investment

-2.7

-3.3

-1.9

-1.0

0.6

1.4

0.9

0.9

1.1

1.2

1.2

Prices

Consumer price index

1.6

3.1

2.1

1.5

1.6

0.1

1.1

2.5

2.5

2.2

2.1

Chained price index for personal consumption expenditures

1.7

2.5

1.9

1.4

1.4

0.3

1.2

2.3

2.4

2.0

1.9

Chained GDP price index

1.2

2.1

1.8

1.6

1.6

1.0

1.5

2.2

2.3

2.2

2.1

Employment cost index

1.9

2.0

1.9

1.9

2.1

2.1

2.4

2.7

2.0

1.9

2.1

Labor markets

Average monthly change in employment

65

167

177

200

236

231

207

185

132

61

68

Unemployment rate (percent)

9.6

8.9

8.1

7.4

6.2

5.3

4.9

4.9

5.0

5.0

4.9

Employment to population (percent)

58.5

58.4

58.6

58.6

59.0

59.3

59.8

60.3

60.5

60.3

60.1

Income and wealth

Real disposable personal income

1.0

2.5

3.2

-1.4

2.7

3.5

2.6

2.7

2.0

1.6

1.6

Net household wealth ($ trillion)

62.0

63.0

70.0

79.0

84.0

88.0

90.0

101.0

108.0

113.0

123.0

Personal saving rate (percent of disposable income)

5.6

6.0

7.6

4.8

4.8

5.2

5.2

5.2

5.1

5.2

5.3

After-tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments

25.0

4.0

10.0

2.0

1.7

-2.4

-1.9

-0.9

0.3

2.2

2.2

Housing

Housing starts (thousands)

586

612

784

928

1,001

1,107

1,377

1,583

1,564

1,343

1,208

Stock of owner-occupied homes (millions)

132

132

133

133

134

135

136

137

138

139

140

Interest rate on 30-year fixed rate mortgages (percent)

4.69

4.46

3.66

3.98

4.17

3.85

4.14

4.62

5.45

6.58

7.39

Foreign trade

Current account balance, share of GDP (percent)

-3.0

-3.0

-2.8

-2.3

-2.2

-2.7

-2.7

-2.9

-2.8

-2.5

-2.4

Merchandise trade balance ($ billion)

-691

-725

-730

-690

-727

-749

-821

-892

-907

-892

-873

Relative unit labor costs (Index, 2008=100)

96.5

85.9

83.3

80.8

81.6

85.5

91.3

91.7

89.7

87.5

85.7

Financial

Federal funds rate (percent)

0.1

0.1

0.1

0.1

0.1

0.2

0.6

1.3

2.0

3.1

3.4

Yield on 10-year Treasury note (percent)

2.9

2.1

1.7

2.8

2.3

2.2

2.5

3.0

3.8

5.1

5.4

Government

Federal budget balance, unified basis (share of GDP, percent)

-8.9

-8.5

-7.3

-4.3

-2.9

-2.6

-2.6

-2.6

-2.9

-3.2

-3.4

Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Table 2. Coordinated global recovery

Percent change, year over year unless otherwise noted.

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

 

History

Forecast

GDP and components

Real GDP

2.5

1.6

2.2

1.5

2.4

2.4

2.3

3.2

3.6

2.9

2.6

Real consumer spending

1.9

2.3

1.5

1.7

2.7

3.1

2.5

3.2

3.4

2.8

2.4

Real consumer spending, durable goods

6.1

6.1

7.4

5.8

5.9

6.0

4.1

4.6

4.2

3.4

3.0

Real consumer spending, nondurable goods

2.2

1.8

0.6

1.9

2.1

2.7

2.6

2.6

3.1

2.7

2.2

Real consumer spending, services

1.2

1.8

0.8

1.0

2.4

2.8

2.2

3.2

3.4

2.8

2.4

Real investment in private housing

-2.5

0.6

13.5

9.5

1.8

8.7

16.6

10.5

-0.1

-10.7

-7.0

Real fixed business investment

2.5

7.7

9.0

3.0

6.2

2.9

3.3

9.1

14.4

11.5

8.1

Real inventory accumulation

58.0

38.0

55.0

61.0

68.0

95.0

49.0

50.0

65.0

56.0

50.0

Real exports of goods and services

11.9

6.9

3.4

2.8

3.4

1.1

1.1

2.2

4.5

5.5

6.0

Real imports of goods and services

12.7

5.5

2.2

1.1

3.8

5.1

3.0

6.3

8.9

6.2

5.5

Real government consumption and investment

0.1

-3.0

-1.9

-3.0

-0.6

0.8

0.8

0.4

0.4

0.5

0.7

Real federal government consumption and investment

4.3

-2.7

-1.9

-5.7

-2.4

-0.3

0.3

-0.7

-0.8

-0.6

0.2

Real state and local government consumption and investment

-2.7

-3.3

-1.9

-1.0

0.6

1.4

0.9

0.9

1.1

1.2

1.2

Prices

Consumer price index

1.6

3.1

2.1

1.5

1.6

0.1

1.1

2.4

2.5

2.6

2.5

Chained price index for personal consumption expenditures

1.7

2.5

1.9

1.4

1.4

0.3

1.1

2.2

2.4

2.4

2.4

Chained GDP price index

1.2

2.1

1.8

1.6

1.6

1.0

1.4

2.2

2.4

2.5

2.6

Employment cost index

1.9

2.0

1.9

1.9

2.1

2.1

2.4

2.8

2.8

3.6

3.5

Labor markets

Average monthly change in employment

65

167

177

200

236

231

216

242

140

77

88

Unemployment rate (percent)

9.6

8.9

8.1

7.4

6.2

5.3

4.9

4.6

4.5

4.6

4.7

Employment to population (percent)

58.5

58.4

58.6

58.6

59.0

59.3

59.8

60.5

60.9

60.7

60.6

Income and wealth

Real disposable personal income

1.0

2.5

3.2

-1.4

2.7

3.5

2.5

2.9

2.9

2.9

2.5

Net household wealth ($ trillion)

62

63

70

79

84

88

89

100

108

116

124

Personal saving rate (percent of disposable income)

5.6

6.0

7.6

4.8

4.8

5.2

5.2

5.0

4.7

4.9

5.0

After-tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments

25.0

4.0

10.0

2.0

1.7

-2.4

-1.4

1.2

4.8

0.0

0.2

Housing

Housing starts (thousands)

586

612

784

928

1,001

1,107

1,369

1,573

1,582

1,389

1,260

Stock of owner-occupied homes (millions)

132

132

133

133

134

135

136

137

138

139

140

Interest rate on 30-year fixed rate mortgages (percent)

4.69

4.46

3.66

3.98

4.17

3.85

4.33

4.85

5.73

6.9

7.81

Foreign trade

Current account balance, share of GDP (percent)

-3.0

-3.0

-2.8

-2.3

-2.2

-2.7

-2.8

-3.2

-3.9

-4.2

-4.4

Merchandise trade balance ($ billion)

-691

-725

-730

-690

-727

-749

-826

-951

-1133

-1254

-1358

Relative unit labor costs (Index, 2008=100)

96.5

85.9

83.3

80.8

81.6

85.5

91.2

91.5

89.2

87.5

85.9

Financial

Federal funds rate (percent)

0.13

0.13

0.13

0.13

0.13

0.17

0.63

1.29

2.04

3.05

3.37

Yield on 10-year Treasury note (percent)

2.86

2.05

1.71

2.75

2.28

2.19

2.77

3.42

4.27

5.52

5.98

Government

Federal budget balance, unified basis (share of GDP, percent)

-8.9

-8.5

-7.3

-4.3

-2.9

-2.6

-2.6

-2.4

-2.5

-2.5

-2.7

Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Table 3. Recession

Percent change, year over year unless otherwise noted.

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

 

History

Forecast

GDP and components

Real GDP

2.5

1.6

2.2

1.5

2.4

2.4

1.9

-0.5

2.3

3.3

2.5

Real consumer spending

1.9

2.3

1.5

1.7

2.7

3.1

2.5

0.9

2.0

2.9

2.6

Real consumer spending, durable goods

6.1

6.1

7.4

5.8

5.9

6.0

4.1

2.6

3.5

3.5

3.0

Real consumer spending, nondurable goods

2.2

1.8

0.6

1.9

2.1

2.7

2.5

0.2

1.6

2.7

2.4

Real consumer spending, services

1.2

1.8

0.8

1.0

2.4

2.8

2.1

0.8

1.9

2.9

2.5

Real investment in private housing

-2.5

0.6

13.5

9.5

1.8

8.7

13.1

-5.5

12.0

-0.6

-8.0

Real fixed business investment

2.5

7.7

9.0

3.0

6.2

2.9

2.3

-3.1

1.0

11.6

7.9

Real inventory accumulation

58.0

38.0

55.0

61.0

68.0

95.0

47.0

-18.0

16.0

49.0

47.0

Real exports of goods and services

11.9

6.9

3.4

2.8

3.4

1.1

-0.8

-7.9

7.7

11.3

9.1

Real imports of goods and services

12.7

5.5

2.2

1.1

3.8

5.1

2.0

-5.0

5.9

12.2

7.5

Real government consumption and investment

0.1

-3.0

-1.9

-3.0

-0.6

0.8

0.8

0.4

0.4

0.5

0.7

Real federal government consumption and investment

4.3

-2.7

-1.9

-5.7

-2.4

-0.3

0.3

-0.7

-0.8

-0.6

0.2

Real state and local government consumption and investment

-2.7

-3.3

-1.9

-1.0

0.6

1.4

0.9

0.9

1.1

1.2

1.2

Prices

Consumer price index

1.6

3.1

2.1

1.5

1.6

0.1

0.9

0.5

1.0

2.5

1.9

Chained price index for personal consumption expenditures

1.7

2.5

1.9

1.4

1.4

0.3

1.0

0.4

0.9

2.4

1.7

Chained GDP price index

1.2

2.1

1.8

1.6

1.6

1.0

1.2

1.2

1.0

1.3

1.5

Employment cost index

1.9

2.0

1.9

1.9

2.1

2.1

2.3

0.9

-1.0

1.9

3.0

Labor markets

Average monthly change in employment

65

167

177

200

236

231

153

-7

217

176

73

Unemployment rate (percent)

9.6

8.9

8.1

7.4

6.2

5.3

5.0

6.6

6.6

5.5

5.1

Employment to population (percent)

58.5

58.4

58.6

58.6

59.0

59.3

59.7

59.3

59.5

59.9

59.8

Income and wealth

Real disposable personal income

1.0

2.5

3.2

-1.4

2.7

3.5

2.6

2.4

1.4

1.5

2.9

Net household wealth ($ trillion)

62

63

70

79

84

88

57

86

102

124

126

Personal saving rate (percent of disposable income)

5.6

6

7.6

4.8

4.8

5.2

5.3

6.7

6.2

4.9

5.3

After-tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments

25

4

10

2

1.7

-2.4

-4.7

-14.7

11.7

6.8

-5.9

Housing

Housing starts (thousands)

586

612

784

928

1,001

1,107

1,327

1,304

1,470

1,435

1,287

Stock of owner-occupied homes (millions)

132

132

133

133

134

135

136

137

138

139

140

Interest rate on 30-year fixed rate mortgages (percent)

4.7

4.5

3.7

4.0

4.2

3.9

4.3

4.2

3.9

4.1

6.5

Foreign trade

Current account balance, share of GDP (percent)

-3.0

-3.0

-2.8

-2.3

-2.2

-2.7

-2.9

-2.7

-2.4

-2.7

-2.6

Merchandise trade balance ($ billion)

-691

-725

-730

-690

-727

-749

-837

-808

-761

-928

-1,016

Relative unit labor costs (Index, 2008=100)

96.5

85.9

83.3

80.8

81.6

85.5

92.3

93.8

91.2

91.1

90.2

Financial

Federal funds rate (percent)

0.1

0.1

0.1

0.1

0.1

0.2

0.3

0.3

0.3

1.1

3.3

Yield on 10-year Treasury note (percent)

2.9

2.1

1.7

2.8

2.3

2.2

2.2

2.1

2.1

2.8

5.1

Government

Federal budget balance, unified basis (share of GDP, percent)

-8.9

-8.5

-7.3

-4.3

-2.9

-2.6

-2.7

-3.2

-3.9

-3.6

-3.6

Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Table 4. Slower growth

Percent change, year over year unless otherwise noted.

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

 

History

Forecast

GDP and components

Real GDP

2.5

1.6

2.2

1.5

2.4

2.4

1.8

1.8

1.9

1.5

1.7

Real consumer spending

1.9

2.3

1.5

1.7

2.7

3.1

2.2

2.1

2.2

1.8

1.5

Real consumer spending, durable goods

6.1

6.1

7.4

5.8

5.9

6.0

4.2

4.5

3.5

2.5

2.1

Real consumer spending, nondurable goods

2.2

1.8

0.6

1.9

2.1

2.7

2.2

1.4

1.8

1.7

1.3

Real consumer spending, services

1.2

1.8

0.8

1.0

2.4

2.8

1.8

2.0

2.2

1.8

1.5

Real investment in private housing

-2.5

0.6

13.5

9.5

1.8

8.7

10.8

2.9

-1.4

-13.3

-8.2

Real fixed business investment

2.5

7.7

9.0

3.0

6.2

2.9

2.0

2.7

3.0

4.2

4.6

Real inventory accumulation

58.0

38.0

55.0

61.0

68.0

95.0

43.0

23.0

25.0

18.0

21.0

Real exports of goods and services

11.9

6.9

3.4

2.8

3.4

1.1

0.4

-0.2

2.2

3.7

4.7

Real imports of goods and services

12.7

5.5

2.2

1.1

3.8

5.1

1.3

0.4

2.3

1.8

2.6

Real government consumption and investment

0.1

-3.0

-1.9

-3.0

-0.6

0.8

0.8

0.4

0.4

0.5

0.7

Real federal government consumption and investment

4.3

-2.7

-1.9

-5.7

-2.4

-0.3

0.3

-0.7

-0.8

-0.6

0.2

Real state and local government consumption and investment

-2.7

-3.3

-1.9

-1.0

0.6

1.4

0.9

0.9

1.1

1.2

1.2

Prices

Consumer price index

1.6

3.1

2.1

1.5

1.6

0.1

1.0

1.8

1.7

1.7

1.7

Chained price index for personal consumption expenditures

1.7

2.5

1.9

1.4

1.4

0.3

1.0

1.6

1.6

1.5

1.5

Chained GDP price index

1.2

2.1

1.8

1.6

1.6

1.0

1.3

1.6

1.6

1.6

1.7

Employment cost index

1.9

2.0

1.9

1.9

2.1

2.1

2.4

2.3

1.5

1.5

1.7

Labor markets

Average monthly change in employment

65

167

177

200

236

231

107

80

72

54

55

Unemployment rate (percent)

9.6

8.9

8.1

7.4

6.2

5.3

5.0

5.2

5.3

5.5

5.7

Employment to population (percent)

58.5

58.4

58.6

58.6

59.0

59.3

59.5

59.4

59.2

59.0

58.7

Income and wealth

Real disposable personal income

1.0

2.5

3.2

-1.4

2.7

3.5

2.4

2.1

1.9

1.9

1.9

Net household wealth ($ trillion)

62

63

70

79

84

88

93

107

114

118

122

Personal saving rate (percent of disposable income)

5.6

6

7.6

4.8

4.8

5.2

5.4

5.4

5.2

5.3

5.6

After-tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments

25

4

10

2

1.7

-2.4

-3.3

-2.1

1.8

-1.5

0.8

Housing

Housing starts (thousands)

586

612

784

928

1,001

1,107

1,300

1,392

1,382

1,178

1,054

Stock of owner-occupied homes (millions)

132

132

133

133

134

135

136

137

138

139

140

Interest rate on 30-year fixed rate mortgages (percent)

4.69

4.46

3.66

3.98

4.17

3.85

3.65

3.63

4.04

5.46

6.68

Foreign trade

Current account balance, share of GDP (percent)

-3

-3

-2.8

-2.3

-2.2

-2.7

-2.6

-2.6

-2.5

-2.5

-2.4

Merchandise trade balance ($ billion)

-691

-725

-730

-690

-727

-749

-798

-823

-856

-856

-858

Relative unit labor costs (Index, 2008=100)

96.5

85.9

83.3

80.8

81.6

85.5

91.1

90.7

87.8

85.8

84.1

Financial

Federal funds rate (percent)

0.13

0.13

0.13

0.13

0.13

0.17

0.38

0.38

1.14

2.50

3.15

Yield on 10-year Treasury note (percent)

2.86

2.05

1.71

2.75

2.28

2.19

1.83

1.71

2.34

3.89

4.60

Government

Federal budget balance, unified basis (share of GDP, percent)

-8.9

-8.5

-7.3

-4.3

-2.9

-2.6

-2.7

-2.8

-3.1

-3.4

-3.8

Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.