US Economy: Growth Rate To Be Slowdown in 2020

From 2020 and onwards, The GDP growth rate of USA’s economy is expected to remain under 2%, which is below the ideal growth rate range (2-3%).  President Donald Trump has promised the growth rate of 4% which is unlikely to happen due to Sino-US (China-United States) trade war. Other Economic indicators like Unemployment and inflation are expected to remain stable.

GDP growth rate

On 11th December 2019, Federal Open Market Committee meeting projected slow-down due to Trade war.

 

2019

2020

2021

2022

GDP Growth rate

2.2%

2.0%

1.9%

1.8%

Unemployment

Unemployment rate is estimated to increase in near future, but it will remain under the fed’s target of 6.7%. Structural unemployment has increase due to technological improvement. Therefore, workers with obsolete skills would compel to earn less in coming years.

 

2019

2020

2021

2022

Unemployment rate

3.6%

3.5%

3.6%

3.7%

Unemployment rate of 5% is considered as a natural rate of unemployment in USA.

Core Inflation

Core Inflation measures change in cost of goods and services but excludes food & energy inflation. Core Inflation = Inflation – (food + energy inflation). Core Inflation rate is expected to increase in coming years. Fed uses this inflation while setting monetary policy. Fed is targeting 2% of Core inflation.

 

2019

2020

2021

2022

Core Inflation

1.6%

1.9%

2%

2%

Interest Rate

On 11th December 2019, Federal Open Market Committee has maintained current fed funds rate from 1.5% to 1.75% and has no intension to decrease until 2021. Fed is more concerned in pushing grow rather controlling inflation rate.

Fed announced that they will stop reducing its Treasury. Fed is no longer replacing its securities, which increased the supply of treasury. Therefore, the yields on treasury are likely to increase.

Treasury yield also depends on the demand of dollar.

Treasury yield depends on dollar as it decreases with the increase in demand for dollar.

Therefore, high demand of dollar means lower treasury yields. If global market improves than investors would prefer risky investment which will decrease the demand for secured treasury bonds.

Prices of Fossil fuel

According to U.S. Energy Information Administration, prices of Crude oil are likely to increase in coming years.

 

2019

2020

2025

2050

Oil prices (USD/barrel)

60

60

81.7

107.9

By 2050, Cheap Oil sources will have been exhausted. Therefore, production of crude oil will become expensive. By that time, Sustainable fuels will replace fossil based fuels.

Employment

From 2018-28, Bureau of Labor Statistics estimated the creation of 8.9 million new jobs.  Due to increase of Artificial Intelligence in industry & services along with e-commerce market, employment in production, administration & sales will decrease. Meanwhile, Jobs in Health care, transportation, warehousing, computer and mathematics will increase.

Suggestions

Increase your Computer and Mathematic skills and target growing sectors e.g. Health care, transportation and warehousing. Although, Economic growth is expected slowdown but there is little to no chances of recession. Therefore, avoid panic in case of any short term pull backs in market.

 

Arslan Nadeem

Economic Analyst

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