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Economic Forecasts

A Good Third Quarter, but a Slowdown Is Ahead

Kiplinger’s latest forecast for the GDP growth rate

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GDP Third-quarter growth a solid 3.5%, but slowdown is coming More »
Jobs Unemployment rate will decline further in '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.3% in ’19, the same as in ’18 More »
Business spending Up 7% in ’18, boosted by expanded tax breaks More »
Energy Crude trading from $65 to $70 per barrel in March More »
Housing 5.46 million existing-home sales in '18, down 1.5% More »
Retail sales Growing at least 4% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

Growth was a solid 3.5% in the third quarter following a strong second quarter gain of 4.2%. However, coming quarters will likely only see a mid-2% pace. Consumer spending grew 4% in the third quarter, the best gain since 2014. Government spending expanded at a good rate, and businesses added to inventories. However, business investment slowed markedly, and housing declined for the third straight quarter. Imports soared, worsening the trade deficit.

Expect 2019 growth to slow to 2.7% from 2.9% this year. Although Americans will keep spending at a healthy clip because of higher wages and low unemployment, the tight labor market will make it difficult for businesses to expand. Additionally, firms may pull back on investment spending in response to slower growth. Finally, high home prices and rising mortgage rates have likely priced out many would-be home buyers, especially in the lower price ranges.

The trade war is likely to ding growth just a bit, as the net effect of a slowdown in both exports and imports is likely to be small. However, uncertainty could create knock-on effects that slow business investment plans, and the need to rejig supply chains will reduce productivity and increase costs.

See Also: When Bad Things Happen to Good Markets

Because of rising wages, look for the Federal Reserve to hike interest rates in December and at least twice more in 2019. Though wage gains are a notoriously poor predictor of inflation, the Fed is likely to use this as justification to continue its rate hike program well into 2019. Federal Reserve Chairman Jerome Powell has indicated that hikes are likely to be paused sometime in the year, however.

Source: Department of Commerce: GDP Data