U.S. Economic Outlook

Short Term Outlook: 

U.S. gross domestic product (GDP) expanded at a 1.1-percent annual rate according to the Commerce Department‘s second estimate of GDP growth.

The previous estimate registered at 1.2-percent growth, but had not accounted for more imports and weaker spending by state and local governments than was previously recorded. Overall, the economy grew at a rate of 1.0 percent in the first half of 2016.

Data for the third quarter has been mixed so far, but economists remain confident that economic growth will register a rebound after a sluggish first half of the year. Household spending is still up, and home sales remain steady. In addition, the labor market remains strong and should continue to sustain consumer spending. Businesses will likely restock their warehouses after liquidating inventories in the second quarter, which will increase output. In the second quarter, business inventories fell $12.4 billion-their first drop since 2011.While oil prices have somewhat stabilized at a new normal, businesses in the energy sector are still trying to adjust operations and inventories as a result of falling oil prices over the past two years. Profits in the energy sector have declined, leading to cuts in capital spending. However, demand for manufactured capital goods may finally be on the rise again, as evidenced by higher demand for a second consecutive month. Investment in new oil and gas wells is likely to remain low for the next while, but the most dramatic losses appear to have subsided.While the U.S. economy continues to outpace the economic growth of other countries around the globe, recent data indicates that progress in certain sectors is slowing. For instance, the Institute for Supply Management reported in August that service industries, which make up approximately 90 percent of the U.S. economy, grew at 51.4 percent annual rate-their weakest pace since 2010. Despite slowing in the service industries, it is important to note that they are still growing, as are other areas of the economy. Growth readings above 50 percent for this particular metric indicate expansion. The growth is just not as high as expected.

Long Term Outlook:

In early September, the Group of 20 (G20) met together to discuss new levers to revive global growth, emphasizing that simply implementing low interest rates would not prop up the global economy enough to sufficiently spur and sustain a strong growth cycle. World leaders are concerned about the growing unpopularity of trade agreements and have committed to combat protectionism to revive international trade and investment. According to IMF director Christine Lagarde, world leaders must determine a way to create growth that is more inclusive.Since the vote on June 23, economists have wondered what effect Brexit might have on the long-term outlook of the global economy. But so far, the outlook for the global economy has not changed as a result of the UK‘s vote to leave the European Union, signaling that it may not have as substantial an impact as originally speculated. While the vote will lead to major changes within the UK, it appears at this point that outside countries will likely maintain their current trade and political relationships with the UK, diminishing volatility from the separation. The UK‘s agreement with the European Union remains uncertain, but that has not yet affected future economic plans for the UK‘s major trading partners.Developing countries appear to be headed toward increased economic growth in the coming years. If growth in developed nations remains steady, emerging markets are expected to lead overall global growth. For example, China, Brazil, and Russia are poised for greater growth over time. While it is not likely that global growth will exceed expectations in 2016, leading indicators from the Organization for Economic Cooperation and Development (OECD) suggest that the global economy is slowly but steadily moving toward recovery and growth.