Despite a weak first quarter, LPL Research still looks for 2.5% GDP growth in 2017.- Midyear Outlook 2017: A Shift In Market Control*
Business and consumer confidence have increased, but have not yet provided a significant boost to the economy. Trends in business spending have been encouraging. Policy uncertainty is likely partly to blame for this disconnect and therefore greater policy clarity may help spur growth.
Although the current pace is somewhat stronger than the trajectory the economy has experienced throughout the expansion, it remains below trend. This may be attributed to employment, income, production, and sales failing to reach levels achieved in prior economic cycles.
According to the Midyear Outlook, weak first-quarter growth at 1.2% aligns with trends in previous years’ first quarters, which may be due to weather-related events and perhaps an ineffective seasonal-adjustment process has led to higher revisions and improved growth in ensuing quarters. If the trend continues, the remainder of 2017 should show improvement, despite a sluggish first quarter.
One thing to watch is the difference between high consumer and business confidence and measures of actual economic activity. While confidence is an important aspect of growth, it doesn’t move Gross Domestic Product (GDP) unless it translates into economic activity. LPL Research looks to greater policy clarity as a possible solution to the disconnect, suggesting that policy uncertainty may be a contributor to reluctance.
Additionally, LPL Research looks to fiscal policy as an incentive for businesses to take economic risks, such as investing in property, plant, and equipment, as well as government spending, which could help drive GDP.
For more in-depth analysis of economic growth, both domestic and international, and other trends shaping markets, download the Midyear Outlook whitepaper from LPL Research.
*We continue to look for the U.S. economy to expand up to 2.5% in 2017, although potential delays in passing major fiscal policies introduce some risk to the downside. Data on consumption, employment, housing, manufacturing, and services all point toward improvement in the months and quarters ahead following sluggish first quarter Gross Domestic Product (GDP) growth.
Economic forecasts set forth may not develop as predicted, and there can be no guarantee that strategies promoted will be successful.