Economists predict modest rate of recovery

The U.S. economy is expected to continue its moderate rate of recovery, as most economists look for the nation's 2016 gross domestic product to rise right around 2.5 percent.

Conference Board Inc., a business membership and research association, forecasts 2.4 percent growth this year.

Labor market conditions are improving, along with wages, consumer spending and housing starts, but these positives are offset by oil-related cuts to investment, a stronger dollar that dampens exports, weak international markets and ongoing inventory correction, the New York City-based Conference Board said. The tax-exempt non-profit business membership and research group counts about 1,200 public and private corporations and other organizations as members in 60 countries.

It said government spending at the state and local levels should contribute to the growth. However, federal government spending and business investment will remain low, and volatile oil prices could hamper growth.

“Overall, expect an economic performance slightly above the long-term trend of 2 percent (for 2016), with continued low retail inflation. For now, on growth, on jobs, on wages, on inflation, 2016 could be as good as it gets,” Conference Board said.

Disappointment over a struggling national economy last year likely will continue into 2016, as any gains are likely to be modest, according to the Indiana University Kelley School of Business.

There had been optimism that the economy could register something more than a “post-recession 2 percent slog,” but negative international conditions and revisions to 2013-14 data from the Bureau of Economic Analysis suggest that was merely an illusion.

“Looking to the year ahead, we see little reason for any real optimism,” said Bill Witte, associate professor emeritus of economics at Indiana University Kelley School of Business. “We think the economy can match the past year, or perhaps do a little better.

“The sectors that have been solid, such as consumer spending and housing, could hold their own but realistically have only limited upside. Other sectors, including business investment, international trade and government spending, seem unlikely to fill the void.”

IU Kelley School economists expect real output growth in 2016 will average about 2.5 percent—slightly improved over 2015 and equal to 2014.

IU economists predicted that inflation may rise slightly and that the Federal Reserve may raise interest rates in early 2016—as it turned out, the Federal Open Market Committee hiked rates in December—but that it will have minimal direct impact.

Corporate earnings are expected to rebound from disappointing levels in 2015, IU economists said, and global economic growth will improve but still remain weak.

U.S. GDP growth is expected to range around 2.4 percent, according to Wallet Hub, a finance website run by Evolution Finance Inc.

“The United States economy is widely expected to be characterized by slower growth during 2016, with the word "tepid' frequently being employed in the context of projections,” said analysts at Wallet Hub.

The recent sharp appreciation of the dollar and the ongoing collapse in oil prices reduced inflation and adversely affected net exports, said University of Michigan economists, noting that weak growth in Europe and developing economies contribute to a strong dollar that hurt U.S. exports.

UM predicted GDP will grow 2.6 percent in 2016—which it said would be the fastest the economy has grown since 2006—and 2.9 percent in 2017. The housing sector continues to contribute to overall economic growth, with housing starts expected to grow at a solid pace, rising to 1.47 million in 2017 from 1.31 million in 2016.

Meanwhile, capital expenditures are expected to increase by 1 percent in the manufacturing sector and by 7.5 percent in the non-manufacturing sector, according to the Institute for Supply Management survey of purchasing and supply management executives.

More than 80 percent of U.S. business owners and executives expect the U.S. economy either to improve or stay the same in 2016, while 17 percent expect the economy to get worse, a BMO Harris Bank survey said.

Also, 70 percent of respondents believe their businesses will grow in the coming year, with 2 percent forecasting a decline in business growth.

The survey asked 839 business owners and executives if they believe the U.S. economy will improve, stay at the same level or worsen in 2016:

c 49 percent expect the economy to improve (up from 38 percent last year);

c 34 percent expect the economy to remain the same (vs. 41 percent last year); and

c 17 percent expect the economy to worsen (vs. 21 percent last year).

The survey asked respondents if they believe their business will grow, stay at the same level or shrink in 2016:

c 71 percent predicted growth in 2016 for their business (up from 56 percent last year);

c 27 percent expect their business to remain at the same size (down from 37 percent last year); and

c Only 2 percent believe their business will shrink in 2016 (vs. 7 percent last year).