Academic journal article Chicago Fed Letter

Economic Outlook Symposium: Summary of 2017 Results and 2018 Forecasts

Academic journal article Chicago Fed Letter

Economic Outlook Symposium: Summary of 2017 Results and 2018 Forecasts

Article excerpt

The Federal Reserve Bank of Chicago held its 31st annual Economic Outlook Symposium (EOS) on December 1, 2017. More than 100 economists and analysts from business, academia, and government attended the conference. This Chicago Fed Letter reviews the forecasts for 2017 from the previous EOS, and then analyzes the forecasts for 2018 (see figure 1) and summarizes the presentations from the most recent EOS.

The U.S. economy entered the ninth year of its expansion in the third quarter of 2017. While the nation's real gross domestic product (GDP) is at its highest level in history, the rate of economic growth since the end of the Great Recession in mid-2009 has been quite restrained. During the 33 quarters following the second quarter of 2009, the annualized rate of real GDP growth was 2.2%-just slightly above what is considered the long-term rate of growth for the U.S. economy.

Last year got off to quite a slow start, with the annualized rate of real GDP growth coming in at 1.2% in the first quarter; early in 2017, growth was hampered in large part by a dramatic drop in inventories, worth nearly $62 billion in real terms, from the previous quarter. The annualized rate of real GDP growth improved in the second quarter to 3.1%-as the change in inventories from the previous quarter was minimal and, thus, no longer the drag to growth it had been in the first quarter. The annualized growth rate in the first half of the year was 2.1%-quite close to the annualized rate since the expansion began. Growth in the third quarter was negatively affected by Hurricanes Harvey and Irma. Especially hard hit were the energy and chemical industries, which have a heavy concentration in the Gulf Coast states. Additionally, the damaging floods and winds forced many people to abandon their homes and vehicles, and shut down several southern ports. Even with the negative economic impact from the hurricanes, real GDP still expanded at a strong annualized rate of 3.2% in the third quarter. The port disruption in part led to a 0.7% drop in imports in the third quarter from the second quarter. This drop boosted net exports' contribution (amounting to 0.4 percentage points) to the annualized rate of real GDP growth in the third quarter. Also, the need to replace and repair damaged homes, vehicles, and other property likely added temporary support to growth in the fourth quarter and beyond.

Consumer spending expanded at a solid pace in 2017: Real personal consumption expenditures grew at an annualized pace of 2.5% during the first three quarters of 2017. After the annualized rate of light vehicle sales (car and light truck sales) reached 18.1 million units in December 2016, it began to decline in 2017, eventually coming in at 16 million units in August 2017. The decline in vehicle sales was larger than the cutback in production, which led to a sharp rise in vehicle inventories. The destruction of an estimated half-million to 1 million vehicles due to the hurricanes provided a temporary boost to light vehicle sales in September and October: The annualized rate of light vehicle sales surged to 18.2 million units during these months, significantly reducing the bloated inventories. Light vehicle sales closed the year at a solid annualized pace of 17.6 million units during November and December.

Energy prices increased some in 2017. Specifically, the price of West Texas Intermediate oil averaged $55.39 per barrel in the final quarter of 2017-above the $49.20 it averaged in the fourth quarter of 2016, but still well below the nearly $80 per barrel it averaged in the ten years before the collapse of oil prices in the middle of 2014.

Given energy prices remained low in 2017, more consumers chose to purchase larger and less fuel-efficient vehicles than in the year before (continuing the pattern in vehicle sales seen over the past few years): Sales for light trucks (including sport utility vehicles) were up 5.0% in 2017 compared with the previous year, while sales for passenger cars were down 11. …

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