Economy to accelerate in 2018 and then take foot off the pedal in 2019 as auto sales downshift

Abstract

Economic growth to accelerate in 2018 and then ease in 2019 as auto sales downshift by William A. Strauss, senior economist and economic advisor, and Thomas Haasl, research assistant According to participants in the Chicago Fed's annual Automotive Outlook Symposium (AOS), the nation's economic growth is forecasted to improve this year and then moderate close to its long-term average in 2019. Inflation is expected to increase in 2018 and to pull back in 2019. The unemployment rate is anticipated to decrease to 3.8% by the end of 2018, but then tick back up next year. Light vehicle sales are predicted to decrease from 17.2 million units in 2017 to 17.0 million units in 2018 and then to 16.7 million units in 2019. The Federal Reserve Bank of Chicago held its 25th annual Automotive Outlook Symposium on June 1, 2018, at its Detroit Branch. More than 40 economists and analysts from business, academia, and government attended the AOS. This Chicago Fed Letter reviews the forecasts from last year's AOS for 2017, and then analyzes the forecasts for 2018 and 2019 (see figure 1) and summarizes the presentations from this year's AOS. The U.S. economy continued to expand from the longest and deepest drop in economic activity since the Great Depression. During the first 30 quarters following the end of the Great Recession in mid-2009 (through the fourth quarter of 2016), the annualized rate of real gross domestic product (GDP) growth was 2.2%-just slightly above what is considered the long-term rate of growth for the U.S. economy. This GDP growth rate is very disappointing, since typically, the pace of economic recovery/expansion is quite sharp following a deep recession. That said, since the start of 2017, growth has accelerated: From the first quarter of 2017 through the first quarter of 2018, the U.S. economy's annualized rate of growth was a somewhat stronger 2.5%. This improvement in growth occurred despite the significant damage and disruptions to economic activity-especially for chemical and energy production-caused by Hurricanes Harvey and Irma in the summer of 2017. Resurgent economic growth has been accompanied by rising energy prices. The average price of oil stood at $106 per barrel in June 2014, but then collapsed later that year, eventually reaching a nadir of $31 per barrel in February 2016. However, over the past two years, oil prices have been increasing, and as of May 2018, they averaged $70 per barrel. The unemployment rate fell to 3.8% in May 2018, below prominent estimates of the natural rate of unemployment (i.e., the rate that would prevail in an economy making full use of its productive Most materials presented at the latest AOS are available online, https://www.chicagofed.org/events/2018/ automotive-outlook-symposium.