Business economists: Solid growth ahead but risks from trade

A group of business economists foresee U.S. economic growth remaining solid next year, with unemployment falling further and only a slight chance of a recession. But they express concern about potential risks, notably from trade conflicts.

In its latest forecast being released Monday, the National Association for Business Economics predicts that the economy will grow 2.7% next year, only slightly below the 2.9% that they expect for all of 2018 as measured by the gross domestic product.

The 2.9% predicted growth for this year would be up significantly from meager gains of 1.6% in 2016 and 2.2% in 2017. But it would still fall shy of the pace that President Donald Trump has pledged to achieve with his program of tax cuts and deregulation.

During the 2016 presidential campaign, Trump vowed to double the lackluster 2% average annual growth that has prevailed since the Great Recession ended. The current expansion, in its 10th year, is the second-longest on record but is also the weakest in the post-World War II period. If the expansion continues through mid-June, it will become the longest on record in the United States, surpassing the one that ended in 2001.

The NABE forecasting panel of 53 economists foresees only a small risk that the expansion will end next year, putting the risk of a recession in the second half of 2019 at 20%. The economists see the risk reaching 30% in the second half of 2020, a presidential election year, and 50% in 2021 and later.

Among the threats to the economy, 40% of the NABE panel ranked trade policy as the greatest risk, followed by interest rates (21% of the panel) and political or geopolitical events (13.

For 2019, 80% of the NABE economists said they had downgraded their forecasts because of the trade disputes. The Trump administration has imposed punitive tariffs on China and other nations that it accuses of engaging in unfair trade practices. The increased U.S. import taxes have triggered retaliatory tariffs on a range of U.S. exports.

In addition to scaling back their GDP forecasts for 2019, nearly two-thirds of the economists said they had lowered their expectations for business investment because of the trade conflicts. And two-thirds said they had raised their inflation forecasts moderately because of a belief that the tariffs will increase prices.

The new NABE outlook projects that job growth will remain strong in 2019. The economists foresee monthly employment gains averaging 166,000, down slightly from an expected average of 207,000 for this year. And they predict that the unemployment rate, already at a 49-year low of 3.7%, will dip to an average 3.6% in 2019.

Inflation is expected to remain tame, with prices rising 2.1% next year, the same as the forecast for this year and in line with the Federal Reserve's 2% annual inflation target.