The outlook for the U.S. economy is nearly unchanged from expectations at the start of the year. Congress will address tax cuts and infrastructure spending only after passage of an updated health care law. A proposal is currently under consideration, but it faces stiff scrutiny from both sides of the aisle in Congress. Anticipated expansionary fiscal policy changes are unlikely to influence economic activity until the tail-end of 2017, at best.

Fundamentals of the U.S. economy are positive and incoming economic data do not suggest a disruption of economic activity. Real gross domestic product (GDP) is projected to grow at a 2.0% annual rate in the first quarter and at a similar pace for the rest of the year.

Key Economic Indicators

Key Elements of the Forecast
  • Employment and income conditions are supportive of continued growth in consumer spending. Real consumer spending slipped in January, reflecting weakness in outlays for goods and services, which must be viewed with caution. The average level of auto sales was elevated for the first two months of the year (17.6 million units), but is lower than the sharply higher outlier of 18.4 million units sold in December. The weakness in services expenditures was due to warmer-than-typical weather in most of the country, which trimmed utility bills. A more stable consumer spending pattern should prevail during the rest of the year.
  • Business spending grew in the fourth quarter after four consecutive quarterly declines. Shipments of non-defense capital goods, the input for business equipment expenditures in the GDP report, slipped slightly in January but the trend is firming. In addition, the Institute of Supply Management’s February survey shows a significant increase in the index tracking new orders (65.1), which is close to the cycle high (66.1) and raises expectations of an increase in factory activity.