Why Some Economists Say 2016 Will Be America’s Best Year in a Decade

A woman pulls shopping carts through the aisle of a Target store on the shopping day dubbed "Black Friday" in Torrington, Connecticut November 25, 2011. The U.S. holiday shopping season was in full-swing on Thursday, with retailers hoping consumers will spend big despite worries about the fragile economy and their own precarious finances.To narrow the gap in store hours with rivals, discounter Target Corp electronics chain Best Buy and department store chains Macy's Inc and Kohl's Corp will open at midnight, their earliest starts ever. REUTERS/Jessica Rinaldi
Jessica Rinaldi/Reuters

Gloom and doom is back in fashion for the American economy. A growing number of economists predict it is heading for another recession sometime soon, and only 1 in 5 Americans believes it’s getting better, Bloomberg reports. The Commerce Department estimates the economy grew a disappointing 1.5 percent in the third quarter.

To which economists at the University of Michigan say: Cheer up!

Forecasters at Michigan’s Research Center in Quantitative Economics said on Thursday that they expect real gross domestic product to grow 2.6 percent next year and 2.9 percent in 2017. That wouldn’t be white-hot growth by any means, but it would be the strongest since 2006, when the economy grew 2.7 percent. And it would come with some very happy numbers for workers, the forecasters predict, including an unemployment rate that falls below 5 percent next year and to 4.6 percent in 2017.

The Michigan optimism flows from several trends in fundamental measures of the economy, which suggest sustained improvement to come. Those include upticks in residential construction, a tightening labor market that appears to be starting to deliver wage increases to workers and — in what you might expect to be a well-watched stat in Michigan — a surge in car and truck sales.

The economists also believe that the U.S. dollar has more or less reached its peak strength for the moment in international markets, which would suggest that America’s trade deficit won’t be more of a drag in years to come than it already is.

“Our view is that we got a pretty weak number in the third quarter for GDP, but that really masked a stronger domestic economy,” said Gabriel M. Ehrlich, the associate director at the research center.

Weakness in America’s trading partners, particularly China, overshadowed that domestic strength, he said. The forecasters expect China’s economy will slow but not collapse in the next two years, he said, and that other major trading partners — including Mexico, Canada and the largest economies in Europe — will see increased growth.

Two important notes about the forecast. First, the center has overshot on its optimism for each of the last four years — it predicted 3.1 percent growth this year, for example. Second, the numbers don’t account for any possible ripple effects on Western economies from the Paris terrorism attacks last week.

Still, Ehrlich said the health of the housing, labor and automotive markets all point to a stronger 2016, though one still weaker, in relative terms, than growth in previous recoveries from recession. The fact remains that 2.6 percent growth could set a high water mark for the past 10 years. “That’s not anything to write home about,” Ehrlich said, “but it is something.”

Written by Jim Tankersley of The Washington Post

(Source: The Washington Post)

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