Let’s recap events since we last published in early August and outline what we can expect for the economy this fall and into 2017. In a word, more:
- More mixed indicators, as the economy just can’t seem to fire on all cylinders at the same time.
- More slow growth overall, with GDP continuing to underperform its potential, though likely accelerating over the anemic first-half growth.
- More heated discussion by economists over what’s holding back productivity and wage growth.
- More speculation about when the Fed will next hike rates and start normalizing monetary policy.
- In short, more muddling through.
To start with some positives, the latest forecast from the well-regarded GDPNow model published by the Atlanta Fed pegs third-quarter GDP growth at a robust 3.5%, compared to growth over the past four quarters averaging just 1.2%. A similar, if less bullish, forecast of 2.7% comes from the Wall Street Journal’s latest survey of economists.
However, both forecasts were released prior to the latest Purchasing Managers Index (PMI) for manufacturers, which fell 3.2% to just 49.4% (indicating modest contraction), and then the services PMI plunged 4.2% to 51.4% (still expanding, but at the slowest rate in the current expansion). These figures suggest GDP growth in line with its recent slow pace. It’s also fair to point out that the GDPNow model has overestimated GDP growth in each of the past three quarters, and at this point in 2Q16 (that is, a month before the end of the quarter), the model was pointing to a growth of about 2.5% (versus the ultimate actual of 1.1%).
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Andrew J. Nelson is Chief Economist for Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.