Wednesday, December 8, 2021
52.1 F
Fort Worth

Focus on finance: What’s the outlook for the U.S. economy?

🕐 4 min read

The U.S. economy is on fairly solid ground, and our latest forecast calls for moderate growth over the long term. There are several areas of concern and business cycles are inevitable, but on balance I expect improvement in the years to come.

Unemployment rates continue downward, though the pace of hiring has slowed to some extent in recent months and the economy is at or near levels traditionally designated as “full employment.” Even so, long-term unemployment (defined as persons jobless for 27 weeks or more) remains stubbornly high, as does the number of workers employed part time for economic reasons (sometimes referred to as involuntary part-time workers). However, through 2040, employment is forecast to grow at a pace faster than population expansion, leading to tighter labor markets (and, potentially, higher wages).

On the domestic front, the Federal Reserve is expected to slowly raise target interest rates in response to growth in the U.S. economy. However, if conditions deteriorate, the normalization of monetary conditions will take longer. It is important that the Federal Reserve proceed with caution in raising rates, as too much too fast could stifle growth. At the same time, there is a need to move toward normalcy to improve the Federal Reserve’s balance sheet and ensure that inflation remains under control. It is a delicate balancing act that will affect long-term economic performance.

The aging of the U.S. workforce is ongoing as the large baby boom generation continues to retire. Skills gaps in some professions and trades are likely to emerge, which could impair growth, although this risk may be overcome by technological advances.

In addition, labor force participation will be a persistent problem, and, over time, the situation could affect standards of living. Currently, almost 95 million Americans over the age of 16 are neither working nor looking for a job. The labor force participation rate (the proportion of the civilian labor force either employed or unemployed but looking for work) has been falling for years and stands at 62.6 percent, according to June 2016 data from the U.S. Bureau of Labor Statistics. With a large and growing percentage of the population not working, pressure will increase for those who do have jobs to generate output, income and tax receipts.

Wage stagnation and the larger issues of income inequality and wealth concentration will also cause problems if not addressed. However, incentivizing corporations to invest in employees is challenging, and forcing the issue could make the problem worse.

From an international perspective, economies around the world are struggling with sluggish growth. Recent projections from the Organization for Economic Co-operation and Development indicate very slow expansion through the near term for industrialized nations and only slightly better performance for emerging markets. The large Chinese economy continues to slow, though the pattern has stabilized to some extent. Recessions are affecting Russia and Brazil.

In addition to sluggish economic performance, tensions remain high in several areas, with terrorist attacks and other incidents increasing uncertainty. Middle Eastern economies are working to adjust to the current low oil prices, which are causing some dislocations. The stability of the European Union is another source of risk, as debt, deficits, a refugee crisis, and unrest among key member nations weigh on the region and, hence, on its major trading partners, including the United States.

Looking out through 2040, my latest projections indicate that U.S. economic output will more than double from the current level. Long-term growth in real gross product is forecast to be about 3.08 percent per year, which would generate expansion of some $18.6 trillion and a 2040 level of $34.9 trillion.

I am estimating that employment will grow by 1.46 percent per year over the period. This projected rate would result in expansion in U.S. wage and salary employment from 141.9 million to 204 million, a gain of about 62.1 million net new jobs by 2040.

It looks like consumer prices will increase slightly, but inflation will remain under control. Interest rates will likely trend upward (due in part to Federal Reserve policy normalization, as noted above). Real personal incomes are projected to grow by about 2.57 percent per annum over the long term.

Although I see significant risks from both domestic and international issues, I feel better about growth prospects than in the not-so-distant past. For one thing, we are finally working through some of the fallout from the Great Recession and the housing market problems. In addition, the economy has shown notable stability in the face of significant upheaval both in the United States and across the globe. All in all, my latest forecast leaves me cautiously optimistic, with the hope that reductions in uncertainty can improve ultimate performance.

M. Ray Perryman is president and CEO of The Perryman Group (www.perrymangroup.com). He also is Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

Ray Perrymanhttp://www.perrymangroup.com
Dr. Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. His firm has served the needs of more than 2,500 clients, including two-thirds of the Global 25, over half of the Fortune 100, the 12 largest technology firms in the world, 10 US Cabinet Departments, the 9 largest firms in the US, the 6 largest energy companies operating in the US, and the 5 largest US banking institutions.

Related Articles

Our Digital Sponsors

Latest Articles

Fort Worth Business Press Logo
This advertisement will close in
00
Months
00
Days
00
Hours
00
Minutes
00
Seconds
seconds..
Click here to continue to Fort Worth Business Press

Not ready to subscribe?

Try a few articles on us.

Enter your email address and we will give you access to three articles a month, to give us a try. You also get an opportunity to receive our newsletter with stories of the day.

This field is for validation purposes and should be left unchanged.

Get our email updates

Stay up-to-date with the issues, companies and people that matter most to business in the Fort Worth.

  • Restaurants
  • Technology
  • and more!

FWBP Morning Brief

FWBP 5@5

Weekend Newsletter

  • Banking & Finance
  • Culture
  • Real Estate