Savannah Chamber

7 1 The National Outlook for 2018 Jeffrey M. Humphreys, Director Selig Center for Economic Growth University of Georgia The Terry College's 2018 national economic forecast indicates that the economic upturn will continue. The rate of 2018 GDP growth (2.5 percent) will be higher than in 2017's 2.2 percent, but below the 2.9 percent average of the last 50 years. Seven reasons why U.S. GDP growth will be slightly higher in 2018 are: (1) more single-family homebuilding; (2) faster growth in spending by businesses for equipment; (3) faster growth in spending by all levels of government; (4) steady growth in consumer spending; (5) steady growth in industrial production, (6) faster growth in exports, and (7) rebuilding properties damaged or destroyed by recent hurricanes. In addition, household balance sheets are in good shape. Corporate balance sheets will not be quite as strong as in 2017, but will be quite manageable due to low interest rates. Small businesses are in good shape and are poised to expand. In 2018, consumer spending, gross private domestic investment, and industrial production will contribute to U.S. GDP growth. The inventory swing will be a slightly positive factor. In addition, government spending will be a positive factor in terms of GDP growth. The Federal Reserve's monetary policy stance will become less simulative as it slowly raises short-term policy interest rates and reduces its balance sheet. The federal funds rate target will reach 2 percent in December 2018, so the inflation-adjusted rate will be about zero– significantly less stimulative, but hardly restrictive. Monetary policy therefore will be neutral. Due to a weaker dollar and faster foreign economic growth, exports will grow faster in 2018 than in 2017, but because imports will grow even more quickly, net exports will subtract from U.S. GDP growth. The subtraction will be larger than in 2017. Low levels of foreign immigration also will slow GDP growth. Multi- family housing starts will trend lower due to higher delivery of new homes that are already in the pipeline, tighter credit for new apartment development, and the rising number of people opting for homeownership. Sub-par productivity growth is another factor that will hold down GDP and personal income growth. This is attributed to several factors, including the aging of the population, low levels of business investment, less foreign immigration, the plethora of government regulations, and the repercussions of many years of mediocre gains in educational achievement. Consumer Spending Consumers' inflation-adjusted contribution to GDP growth will be about 2.7 percent, which is the same size as in 2016-17. Job creation will continue to bring the economy past full employment, prompting slightly faster wage and salary growth as well as gains in hours worked. The job gains—reinforced by wage and salary growth and low interest rates—will bolster household balance sheets, but will also raise unit labor costs. These increased costs will encourage employers to invest in labor-saving equipment and processes, thereby slowing employment growth. Improved housing market conditions will give consumers the confidence to spend, but stock market volatility could adversely affect consumers' confidence in the economy. Growth of disposable personal income will give consumers the wherewithal to spend, especially to replace homes and belongings damaged by recent hurricanes. Credit will be available, but not any more so than in 2017. Lenders will loosen lending for home mortgages, but will be wary of car loans due to rising default rates. Many households have already locked in

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