US NABE Outlook: Sees 1Q Weakness As Temporary; 2Q Rebound: MNI

–Lowered Expectations For Economic Outlook
–Predicts Two More Rate Hikes in 2017, Three In 2018

WASHINGTON (MNI) – U.S. business economists forecast a bounce back in economic growth in the second quarter, asserting the weak first quarter economic growth is transitory, despite expectations on economic outlook being revised down marginally, the survey conducted by the National Association of Business Economics showed Monday.

The panelists in the NABE Outlook Survey Report forecast the GDP to grow to 3.1% in the second quarter of 2017 and about 2.5% in the second half of the year. However, the median forecast calls for the average annual GDP to be 2.2% for 2017, and 2.4% for 2018, down 0.1 pp compared to the March 2017 estimates.

The business economists seem to be mirroring the Federal Reserve’s sentiment towards an impending rebound from weak economic growth, shown by the lower than expected first GDP estimates. However, economic expectations are slightly lower than what was seen in March.

In regards to economic policy, NABE President Stuart Mackintosh weighed in saying, “large majorities of the panel continue to assume tax reform affecting both corporations and individuals will be enacted before the end of 2018, as will an infrastructure spending program,” but, he adds that even if tax reforms were put in place only 30% of panelists expect between 0.01 and 0.25 percentage points to be added to the real GDP growth through 2017. Those surveyed viewed the balance of risks as being 59.6% weighted to the upside vs. 36.2% to the downside.

The NABE panelists “continue to expect that the Federal Reserve will raise the midpoint of the federal funds rate target range to 1.375% by the end of this year, and to 2.125% by the end of 2018. This view is unchanged from that in the March 2017 Outlook Survey, and implies two additional rate hikes in 2017, and three next year,” Mackintosh said in the survey release.

The surveyed business economists expect monthly nonfarm payroll growth in 2017 to be 178,000, down slightly from the 183,000 forecast in March. The panelists also expect the unemployment rate to decline to an average of 4.5% for the year, marginally lower than the March forecast of 4.6%.

The NABE panelists’ forecast for inflation in 2017 was unchanged from the March survey at 1.9%. The annual average inflation as measured by the CPI, however, is expected to jump to 2.4%, up from 1.3% in 2016. Fourth quarter annual change in the personal consumption expenditures index is expected to decrease to 1.9% from March’s forecast of 2.0% for 2017. The Federal Reserve’s preferred measure of inflation, Core PCE, is expected to increase 1.9% on a Q4/Q4 basis in 2017.

Hourly compensation growth in 2017 is expected by those surveyed to be 3.1%, somewhat above the 2.9% increase seen in 2016, the survey said.

The median estimate for the WTI price per barrel at year end is $53, a $2 per barrel decrease from the March survey.

Panelists’ forecast real spending on residential investment in 2017 to increase to 5.7%, up from the 4.6% estimate in the March survey.

The outlook on 10-year Treasury yields has been revised downward to 2.75% from 2.82% in March.

Overall, the panelists outlook on the potential of a recession occurring was positive, with 93.9% responding there is a 0-25% probability of there being a recession in 2017 and 77.1% placing a 0-25% probability in 2018.

Source: MNI

–MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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