GDP Growth to Improve Despite Strong Dollar’s Drag

NYSEU.S. GDP growth will pick up a bit in 2016 to 2.7% from 2.5% in 2015, despite continuing troubles in the export and mining sectors. Strong consumer spending, which makes up more than two-thirds of U.S. GDP, will be the main engine of growth. The housing market will continue to strengthen, too, courtesy of pent-up demand and an increase in household formations. Moreover, many buyers will rush to beat coming increases in mortgage rates. Business investment will also show a pickup.

Though third-quarter growth slowed to 2% from the strong second-quarter rate of 3.9%, the slowdown is mainly attributable to a lack of growth in exports and to inventory cutbacks by manufacturers in light of the weak outlook for exports. Growth likely rose at a 2% pace in the fourth quarter as well, though it should pick up to 2.7% in the first quarter of 2016 as inventory cutbacks diminish, exports stabilize and housing construction benefits from the expected warm winter.

The biggest drag on U.S. growth going forward? International trade. The strong U.S. dollar will continue to discourage exports while encouraging imports. The slowdown in China, in particular, will be a big drag on U.S. exports, both to China itself and to China’s suppliers, including South Korea, Australia and Japan.

The drag from trade figures to subtract half a percentage point from GDP growth next year, preventing a decent year for the economy from being a really good year.

(Source: Department of Commerce: GDP Data)