2016 Economic Outlook
According to consensus economic sources, the U.S. economy is expected to grow in 2016 despite concerns regarding U.S. exports and China’s economic slowdown that is expected to continue through 2016. Compared to last year, most major U.S. economic indicators predict slightly better performance for businesses in 2016.
2016 Economic Indicators and what this means for OEMs
GDP: Respectable growth is forecast between 2-3% this year. The primary reason for expected GDP growth in 2016 is strong consumer spending. The housing market is also expected to strengthen and will contribute to the growth. For U.S. goods manufacturers, this is somewhat positive news, however competing abroad will remain difficult due to the strong value of the U.S. dollar and the recent devaluing of the Chinese Yuan.
Unemployment: Predictions for this economic indicator are expected to remain the same as year-end 2015 at around 5%. Not much fluctuation from this percentage is expected this year. This indicator promotes economic growth as more individuals are earning wages, but having a lower pool of job candidates to select from could mean an increase in wage competition among manufacturers and service providers.
Interest Rates: The Federal Reserve raised short-term interest rates a quarter of a point from .25% to .5% in December. This was the first rate hike since 2006. The cost to borrow is higher which could discourage capital investments, but the low rate may not make a difference as indicated by the Federal Reserve’s confidence in approving the increase. A second rate increase is expected later this year.
Inflation: This indicator is predicted to remain low throughout 2016 at around 2.4%. There is no indication that significant fluctuation in this percentage will occur this year. This is positive news to manufacturers as the cost to purchase new equipment will not be significantly higher than last year.
Business Spending: Major investment in new equipment by businesses will likely remain flat with 2015 as little gain is predicted. Spending cut trends from buyers appears to be over, but businesses will likely continue to delay new purchases throughout this year.
Energy: Fuel prices are expected to continue falling for the first half of 2016 with slight increases occurring in the latter half of the year. Long-term energy prices are expected to gradually increase and normalize towards year end. Low energy prices are positive news for consumer goods industries as more discretionary income will be available.
Housing: More gains are expected to occur in the housing market throughout 2016 despite rising interest rates. Builders remain confident that new home sales will remain steady this year.
Retail Sales: Consumer spending is expected to remain strong in 2016. Wage growth and the marked decrease in gasoline prices have significantly revived consumer spending. Retail sales are expected to grow faster than the GDP growth rate throughout this year.
Trade Deficit: This indicator will continue to rise in 2016. An increase in the shortfall on trade is predicted mainly as a result of the strong U.S. dollar. Imported goods will continue to be strong, but the outlook for U.S. exports is less promising. As the growth for China and other emerging market countries continues to slow, purchases for U.S. goods will continue its decline.
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