Economists See Stronger US Growth, But Weak Job Gains and Stickier Inflation

  • Surging business investment is expected to offset weaker growth in consumption and global trade and keep the U.S. economy growing near trend, according to a National Association for Business Economics (NABE) survey. However, slow job growth, higher unemployment and stickier inflation will mar the outlook.
  • The Trump administration's new import taxes remain a drag on the economy's performance, the survey concluded, with more than 60% of the 40 economists in the poll estimating tariffs would knock up to half a percentage point from economic growth, with both imports and exports falling, and consumer prices rising as a result of the levies.
  • While none of the polled economists saw tariffs boosting growth, the latest version of NABE's quarterly survey upgraded the more pessimistic views about the U.S. outlook. This upbeat in the growth outlook follows projections offered earlier in the year when concerns about the economic blow from tariffs and the risks of a broader trade war were at their peak. That said, the median projection was for the economy to grow 1.8% in 2025, around most estimates of underlying potential, compared to 1.3% projected in the June survey.
  • Inflation as measured by the Federal Reserve's preferred Personal Consumption Expenditures price index was seen ending the year at 3%, down slightly from the 3.1% projected as at June. But it was also seen declining only to 2.5% in 2026, compared to 2.3% in the June survey, indicating a slower return towards the Fed's 2% target.
  • The unemployment rate, meanwhile, was seen rising through next year though less than feared as at June to 4.5% versus 4.7% in the prior survey.
  • More notably, the Fed is seen cutting interest rates, though at a slightly slower pace than anticipated by investors, with only one more rate cut anticipated this year versus the two quarter-point cuts currently priced into contracts tied to the central bank's benchmark interest rate.
  • Overall, the survey highlighted one of the ongoing puzzles that Fed officials in particular are trying to understand - GDP growth that has begun surprising to the upside while job growth remains tepid.

(Source: Reuters)