The U.S. economy will enjoy a mild cyclical rebound in 2017, then return to a lower growth rate more in line with long-term potential. Gross domestic production, inflation-adjusted, grew at fairly tepid rates over the past three quarters. But jobs are increasing at a moderately good pace, with unemployment below five percent. Some of this year’s negative factors will turn around, enabling the rebound next year.
The strongest part of the GDP reports has been consumer spending, up 3.8 percent over the past 12 months. That compares to a 3.6 percent gain in take-home pay, resulting in a minuscule drop in the savings rate. Consumer attitudes are stable at a good level, a bit above the long-run average. I expect consumers to continue increasing their spending in line with their incomes.