The United States economy will rebound from a lackluster start to the year with 2.8 percent annualized, inflation-adjusted real GDP growth in the second half of 2015, economists with the American Bankers Association said this week.
The ABA’s Economic Advisory Committee attributed the weak first quarter to a myriad of temporary factors, from bad weather to the West Coast port strike to the drop in oil sector investment, but they said that fundamentals nonetheless remain positive, with healthy household and business balance sheets, low oil prices and strengthening housing and stock prices.
The committee also felt that fiscal and monetary policy is no longer a headwind but is now supportive of growth, as tax and spending policies turn neutral across the federal, state and local levels. They expect the budget deficit to stabilize at $480 billion in fiscal year 2015, and further, they expect the Federal Reserve to maintain near-zero interest rates until September, at which point the bank economists expect to see a gradual normalization of rates over the next several years.
“The Fed is ready to move once the data show clearly that the weak first quarter was an aberration,” Ethan Harris, chairman of the group and co-head of global economics research at Bank of America Merrill Lynch, said in a statement. “Nonetheless, we see this as a gentle normalization process rather than an attempt to curb growth and stop inflation.”
The group also said lower energy prices were a net positive for the economy. Low prices have hurt the oil patch, cutting into mining employment and capital spending, but the boost to consumers will more than offset this negative, they said.
While the collapse in mining investment contributed to a 2.8 percent annualized decline in business fixed investment in the first quarter, the committee sees about 5 percent growth in overall capital expenditures over the coming quarters as investments in other industries pick up.
The committee also expects monthly job gains of 200,000 or so this year and next, with the unemployment rate expected to decline to about 5 percent over the year ahead. Moreover, the improving labor market is starting to show up in modestly better wage growth.
The committee expects 2.7 percent real consumption growth in 2015. The group also said it expects residential investment to continue to recover, with gains in housing starts and home sales and home prices expected to rise almost 5 percent this year nationwide.
“While mortgage lending remains tight, an improving labor market and stronger household formation should support the housing market,” said Harris. “However, Millennials seem more inclined to rent rather than own, suggesting that growth will remain concentrated in the multi-family market.”
The group’s consensus is that 30-year fixed mortgage rates will rise slowly from 3.8 percent today to 4.1 percent by year-end and 4.6 percent a year later.
The group sees improving credit quality and availability. Delinquency and charge-off rates are expected to continue to fall. Consumer bank credit is expected to grow more than 5 percent over the course of this year and next.
