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--Expect Rate Hike in December to Push FFR to 1.375% in 2017
--Weakening Pricing Pressures Pushed Inflation Down in 2017
By Sara Haire
     WASHINGTON (MNI) - U.S. business economists are expecting 2018 GDP growth
to rise, while expectations for inflation has mildly softened from September,
according to the National Association of Business Economics December 2017
Outlook Survey.
     The median forecasts for the average annual inflation-adjusted GDP growth
for 2017 was unchanged from September at 2.2%, while growing 0.2pp to 2.4% for
2018. Median forecasts for the fourth quarter of 2017 GDP growth rose to 2.7%
from 2.5% in September.
     The core PCE price index, the Fed's favored inflation measure, is expected
to see a 1.4% rise on a Q4/Q4 basis in 2017, down from the 1.9% and 1.5%
estimates in June and September, respectively. Panelists are expecting a 1.8%
expected growth year-over-year for 2018 core PCE inflation, down slightly from
the estimated 1.9% in the previous survey. The report suggesting "weakening of
pricing pressures as the year has progressed" to be to blame for the downward
     However, the Beige Book survey following the October/November FOMC meeting
stated "price pressures have strengthened..." since the previous report,
suggesting inflation could be on an upward path for the future, closer to the
Fed's target of 2%. 
     The NABE panelists did not change their expectations seen in September
about the federal funds target range reaching 1.375% by the end of 2017,
suggesting an expected 25 basis point rate hike at the December meeting.
However, the forecast for 2018 has flattened, with a year-end rate of 1.983%,
down from the 2.125% projected in September.
     The tax bill passed in the House and another version passed in the Senate
early Saturday morning. Now House and Senate Republicans will have to hold a
conference where a compromise bill will be negotiated for Trump to sign,
something he is hoping to do before Christmas.
     The panelists, surveyed from November 6th through the 15th, expected tax
reform to occur quickly, with 84% of panelists expecting individual tax cuts to
be enacted by the end of 2018, with 76% expecting it to happen within the first
quarter of 2018. 82% of those surveyed also anticipate the corporate tax reform
to be signed, sealed, and delivered by the end of 2018, with 76% expecting it to
occur in the first quarter of 2018.
     Despite a rise in panelists expecting legislation on tax reform to occur by
the end of 2018, only 35% of those surveyed expect that an infrastructure
spending plan will be in place by the end of 2018, far below the 61% seen in the
September survey. 37% of panelists are not expecting to see an infrastructure
spending plan enacted during this presidential term.
     The NABE panel's median outlook for corporate profit growth in 2017 jumped
to 6.2% from 5.0% in the September survey, however the range of forecasts is
rather wide, according to the survey.
     Panelists forecast nonfarm payroll growth will average about 167,000 jobs
per month in 2017, slower than the 178,000 pace expected in September, most
likely due to the disruption of the hurricanes in August and September. The
current forecast of monthly gains is lower than the actual 187,000 seen in 2016.
They also foresee a further slowdown to 158,000 jobs per month next year, an
indication that panelists are expecting the market will soon reach full
employment if it has not already.
     Even though there is a slower job growth projection, panelists expect the
unemployment rate for 2017 to average 4.4%, while the 2018 forecast is expected
to fall to 4.1%, even down from the 4.2% expected in September.
     The median forecast for hourly compensation growth in 2017 fell to 2.0%,
down from the 2.3% in September. However, with a lower unemployment level and
slower job growth, panelists are expecting hourly compensation in 2018 to see a
jump to 3.0%, with "wage growth outpacing inflation (PCE) in both years."
     Despite a bump in hourly earnings to be expected, the growth in real
consumer personal consumption expenditures for the next two years is expected to
slow down to 2.8% in 2017 and then further to 2.5% in 2018.
     The panelists' expectations for 10-year Treasury yields slid slightly in
this survey to 2.45% at year-end, compared to the 2.49% yield expected in the
September survey. The panel expects a further drop to average 2.3% in 2018.
--MNI Washington Bureau; +1 212-800-8517; email: