Bank Economists: Tighter Labor Market Will Drive Wage Growth

The U.S. economy will continue to expand, with growth in 2017 forecast to reach 2.1 percent, the ABA Economic Advisory Committee said today. They added that growth could be stronger depending upon the magnitude and timing of any fiscal stimulus.

“The economy has been growing for seven years and should continue to grow moderately over the next two years,” said EAC Chairman Christopher Probyn, managing director and chief economist of State Street Global Advisors. The committee noted, however, that while consumer spending, housing and business investment will likely support economic progress, weak demand and a strong dollar could temper economic growth.

The EAC — which is made up of 17 chief economists at some of the nation’s largest banks — said it expects growth to continue to create jobs and lead wages higher, projecting 1.9 million new jobs in 2017, which will push wages up by 2.7 percent. Meanwhile, unemployment is expected to remain close to the current level of 4.6 percent through 2017, the EAC said.

“All of the major sectors — from housing to business investment to consumer spending – are working together to support the growth of jobs and the economy,” said Probyn. “Consumers feel more confident because the labor market is improving, wages are rising, home values are appreciating and investment returns are increasing. It makes them more comfortable buying cars, going on vacations and making other big-ticket purchases.”

Committee members said they anticipate the Federal Reserve to raise its federal funds target range two times over the course of the year, but noted an unusual degree of uncertainty in their outlook, given the current lack of specificity about the direction of fiscal and trade policy. A combination of fiscal stimulus, faster growth and accelerating inflation could lead the Fed to move more aggressively, Probyn added.