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In Focus Consumer Credit

US economists see moderate growth amid uncertainty

The American economy looks set for continued growth, but the threat of recession still exists due to worldwide trends

Robert Dye Chairman, Economic Advisory Committee, the American Bankers Association

According to our new forecast, the pace of growth will moderate through 2019 and 2020, reflecting fading policy support in the US and a slowing global economy. The median forecast of 15 chief economists

from major North American banks surveyed in the first week of January is that economic growth will ease to 2.1% in 2019 and 1.7% in 2020 – comparing the fourth quarter of each year. This means the current expansion will become the longest in US history.

Strong consumer sector A strong consumer sector and moderate business investment, with full employment and rising wage growth, should sustain the expansion. With ongoing hiring, the group expects

the national unemployment rate to decline to a 60-year low of 3.5% by year-end, with average monthly job growth abating from more than 200,000 last year to a still-robust 160,000 in 2019. We expect private average hourly earnings to be up 3.4% this year.

Given the tight labour market, firms will

be forced to pay up to hire. More jobs and rising pay should keep confidence elevated and consumer spending healthy.

Spending growth The committee forecasts household spending growth will be above 2% this year. Purchases of durable goods, including automobiles, are predicted to remain strong but diminish further from the 2017 peak. The group sees higher mortgage interest rates impacting

the demand for housing, with growth in home prices sliding down to 4.4% nationally this year followed by 3.3% next year. While the committee does not forecast a

recession in 2019 or 2020, it recognises the heightened uncertainty and increasing downside risk for US and global economy. The committee sees a 20% chance of a US recession this year and 35% in 2020. A range of developments pose threats,

particularly cooling global growth, recent financial market volatility, ongoing trade tensions and political uncertainty. However, if tariff tensions can be resolved it will boost business sentiment.

A strong consumer sector and moderate business investment, with full employment and rising wage growth, should sustain the expansion

Resilience Still, the group noted that the economy has been resilient against shocks over the past decade. The strength of households and the banking sector will promote stability in the US economy, despite the headwinds. The Federal Reserve is likely to achieve a

soft landing for this economy with healthy labour markets and inflation holding near 2%. So the Fed is likely to slow the cadence of rate hikes this year, and we expect no more than two 25-basis point increases. The committee expects rates on three-

month, two-year and 10-year Treasuries to rise about 0.5% from present levels to finish the year at 2.9%, 3%, and 3.2%, respectively. Similarly, 30-year fixed rate mortgage rates are predicted to close the year at 4.9%. The committee expects consumer credit to

grow at 4% and business credit to grow at 3.2% in 2019. The strength of the banking industry will continue to support growth in the economy. CCR

February 2019 21

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