Release Date: June 14, 2016
Contact: Carol Danko, 202.962.7390, [email protected]   

  GDP Outlook Weakens; Business Spending and Consumer Consumption Key Factors:
SIFMA Roundtable of Economists Unveil Mid-Year 2016 Economic Outlook

Washington, DC, June 14, 2016 – SIFMA’s Economic Advisory Roundtable forecasted that the U.S. economy will grow 1.8 percent this year, strengthening to 2.3 percent in 2017. The current outlook for 2016 is considerably weaker than the Roundtable’s end-year prediction, mainly due to weaker than expected growth in the first half of the year.

“Once again, the SIFMA Roundtable has reduced its outlook for real GDP growth in 2016 to 1.8 percent as global downside risks held growth in check in the opening half of this year.  The Roundtable does expect economic growth to top 2 percent in the second half of 2016 and in 2017 as inflation inches closer to the FOMC’s 2 percent goal. Thus a funds rate hike in the summer quarter and another in the winter quarter remains the majority forecast, if just barely,” said Stuart Hoffmann, SVP and Chief Economist, PNC Financial Services Group and chairman of SIFMA’s Economic Advisory Roundtable.

Monetary Policy:                                       

Over 90 percent of respondents expect the Federal Open Market Committee (FOMC) will not hike the Federal Reserve’s target rate range at the June 14-15, 2016 meeting. When questioned about the timing of the next rate hike, nearly two thirds of respondents expected it will occur in the third quarter of 2016, with the balance expecting the fourth quarter of 2016.

Survey respondents were nearly evenly split as to how many rate hikes they expect in the remainder of 2016: a little under half of respondents expected only one rate hike, while the remainder expected two.  

Asked when the lower end of target federal funds rate range would reach one percent, a third of respondents predicted 1Q’17, 29 percent forecast 2Q’17 and the balance in 3Q’17 or 4Q’17.

Asked when the Fed’s complete reinvestment policy would end, views were mixed, with responses ranging from the fourth quarter of 2016 to the second quarter of 2019, with most clustered around late of 2017 or early 2018.

The Economy:

The median mid-year forecast called for 2016 gross domestic product (GDP) to grow by 1.8 percent on a year-over-year basis and by 2.0 percent on fourth-quarter-to-fourth-quarter basis, weaker than the 2.5 percent predicted on both year-over-year and fourth-quarter-to-fourth-quarter basis in the end-year 2015 survey. 

Employment is expected to continue to improve. Survey respondents predicted the un-employment rate to fall from an average of 4.9 percent in 2016 to 4.6 percent in 2017.  Employers are expected to add 2.3 million workers to their payrolls in 2016, falling slightly to 2.0 million in 2017. 

Estimates for business capital investment for full-year 2016 weakened considerably to a 0.4 percent decline; although it is expected to improve to 3.5 percent in 2017.  The outlook for state and local government spending weakened slightly to 1.6 percent growth in 2016, and 1.7 percent growth in 2017.

The forecast for “headline” inflation, measured by the personal consumption expenditures (PCE) chain price index, of 1.2 percent was lower than the end-year forecast 1.6 percent and is expected to rise to 1.9 percent for full-year 2017. 

Interest Rates:

Median survey forecasts for 10-year Treasury rates were: 1.90 percent for June 2016, 1.95 percent for September 2016, 2.05 percent for December 2016, 2.20 percent for March 2017 and 2.30 percent for June 2017.  FOMC interest rate policy was cited as the dominant factor impacting Treasury yields in the second half of 2016, followed by economic growth prospects and inflationary expectations.

Risks to Growth: Consumer Spending and Housing on the Upside; Global Economic Weakness and Business Spending Declines on the Downside:

Business confidence was considered the most important factor impacting U.S. economic growth, followed by private credit market conditions and Federal Reserve interest rate actions. Developments in the Eurozone, U.S. fiscal policy and developments in emerging markets were ranked a distant fourth through sixth. One respondent noted the upcoming presidential election as a factor as well.

Election Cycle & Brexit:

A slim majority of respondents agreed that the upcoming presidential election would impact GDP growth, largely through the suppression of both consumer and business spending due to uncertainty.

When asked about the upcoming June United Kingdom vote on the potential exit from the European Union in June (“Brexit”), respondents unanimously expected the UK to stay in the EU. When asked about the potential impact of a UK exit, respondents were unconcerned.

Oil Prices: 
  

Panelists placed a 20 percent chance on West Texas Intermediate (WTI) crude oil prices dropping to below $40 by the end of 2016, a 40 percent chance of prices between $41 and $50 a barrel, a 20 percent chance of prices between $51 and $60, and the 20 percent chance for prices rising to $61 or higher.

The full report is available at the following link: http://www.sifma.org/eoutlook20161h/