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Economists: Growth will pick up next year

The U.S. economy is expected to strengthen next year, in part because of the government stimulus proposed at by President-elect Donald Trump, but job growth is likely to slow as the recovery approaches its eighth anniversary, according to a recent survey of economists.

The economy is projected to grow at a 2.3% annual rate in 2017, up from an estimated 1.6% this year, according to the average forecast of 53 economists surveyed earlier this month by Blue Chip Economic Indicators. That’s modestly above the tepid 2.1% average that has prevailed since the Great Recession ended in June 2009.

The big wild card: the Trump effect. Quick congressional passage and implementation of his plan to sharply increase infrastructure and defense spending and slash taxes could mean faster growth. But delays or a significant scale-down by lawmakers could leave the higher interest rates his blueprint already has triggered without the benefits. And Trump’s threats to slap big tariffs on China and Mexico risk trade wars that could further roil the economy.

“There’s a significant downside risk from trade,” says Richard Moody, chief economist of Regions Financial.

The economy grew healthy 3.5% in third quarter
Average monthly job growth is projected to slow to 160,000 from 180,000 so far this year and 229,000 in 2015, according to the economists’ average estimate. That’s largely because the low, 4.6% unemployment rate is providing employers a smaller pool of available workers, says Mark Zandi, chief economist of Moody’s Analytics.

Also, the tandem of solid job gains and a sluggish economy has resulted in anemic increases in productivity, or output per worker hour. Both Zandi and Moody expect businesses to invest in more labor-saving technology next year to bolster productivity, but that likely would curtail hiring.

Yet the tight labor market should juice wage increases as employers bid up to attract workers, Zandi says. He predicts average annual earnings growth – which was 2.5% in November – will reach 3% to 3.5% by the end of 2017.

The higher pay, he says, should draw more discouraged workers back into the labor force, keeping the unemployment rate – which many economists say now represents full employment – roughly flat next year.

Consumers, meanwhile, are poised to underpin economic growth again as a result of those fatter paychecks, steady job gains, record housing and stock prices, reduced debt and still-cheap gasoline. The economists surveyed by Blue Chip expect consumption to increase a solid 2.5%, in line with gains in 2016.


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