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.