Factors to consider when forecasting

The economy is doing better and confidence is growing. This will translate into somewhat faster gross domestic product growth for 2017, as well as slightly higher aggregate demand compared to our outlook in the summer.

Business investments will likely grow in 2017 and by quite a bit if the corporate tax rate is dropped substantially below the current 35 percent. Beyond 2017, capacity constraints, higher import prices and labor shortages will begin a multi-year upward path for inflation. This also means higher interest and mortgage rate.

As usual, this will impact construction activity in a negative way. Hence, you should expect a drop in aggregate consumption in 2018 with a slow recovery in 2019. The timing of any infrastructure stimulus will have a big impact on our near-term outlook. Our assumption is that something will pass Congress in 2017, with most of the changes impacting construction contracts between late 2018 and 2023.

We have added our estimates for 2019 in the table. If our consumption path is correct, 2017 will be the seventh year of aggregate demand gains. We expect changes will be sharper and more volatile during the next seven years.

With entitlements growing, the labor force slowing and U.S. debt at more than $20 trillion, it will be a huge challenge to maintain prosperity. The most important economic factor will be the rate of productivity growth. The slowdown in productivity growth this decade must be reversed if we are to successfully navigate through the headwinds of the next 10 years.