New variables to consider when forecasting aggregate demand

By |  July 18, 2019
Note: There is a small difference between our estimates of consumption and the USGS because of our own estimates in states where USGS does not report values due to competitive concerns. Source: SC Market Analytics. Click to enlarge

Note: There is a small difference between our estimates of consumption and the USGS because of our own estimates in states where USGS does not report values due to competitive concerns. Source: SC Market Analytics. Click to enlarge

We’ve entered the volatility portion of the growth wave.

There are now mixed winds blowing from multiple directions. We still think the dominant forces will continue to push the economy forward at near-3 percent GDP growth per year. The quarter-to-quarter growth will have wide swings (i.e., high variance) from near zero to 4-plus percent.

Everything is now moving: tariffs, trade deals, inverted yield curves, tax hikes, border walls, impeachment, large productivity changes, robots, aircraft carriers, belt and road, and more. In other words, things are normal.

For construction, our baseline case is for slow positive growth for the private segments (i.e., residential, nonresidential) and higher spending for infrastructure. Still, it seems unlikely that a large infrastructure program will be implemented before 2021.

While residential has been growing for five years, we think pressure is building again for another leg up after 2020. Home prices are leveling off, millennials are again moving to the suburbs, income growth continues, and the birth rate will have a small upward change after 2020. The result will be higher residential investment during the 2021-2024 period.

Nonresidential continues to balance the negative Amazon effect against record job levels and more facilities for seniors. The result will be small increases for another year and then moderate growth for nonresidential once more.

The biggest winner for the next few years will be infrastructure, even without a new federal infrastructure bill. State and local governments will have enough money left over after paying for soaring pension costs to fund more local work. Those areas with large unfunded liabilities will not participate in any growth.

The net result of all these changes is higher aggregate demand and strong support for higher aggregate prices.


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