June 6, 2019/IMF
In July the U.S. economy will have achieved the longest expansion in recorded U.S. history. Since June 2009 the economy has repaired the damage wrought by the financial crisis and demonstrated extraordinary resilience, enduring both domestic policy tightening (in 2011-15 there was a cumulative 5¼ percent of GDP withdrawal of fiscal stimulus) and a range of external shocks. Unemployment has been on a downward trend for almost a decade and is now at levels not seen in 50 years. Over the course of this expansion an average of 2 million jobs per year have, on net, been created. Real wages are rising, including notably for those at the lower end of the income distribution, and productivity growth appears to be recovering. Against this backdrop, inflationary pressures remain remarkably subdued. The U.S. external position is judged to be moderately weaker than implied by medium-term fundamentals and desirable policies.
Real GDP is expected to grow at an annual rate of 2.6 percent this year, before moderating to around 2 percent in 2020. A fiscal expansion put in place in 2017-18—with tax reductions and an increase in both defense and nondefense spending—has helped bring annual growth to 2.9 percent in 2018. However, as the effects of this fiscal impulse fade over the next few years, growth will gravitate back toward potential (of around 1¾ percent). Risks are viewed to be broadly balanced around this forecast. A deepening of ongoing trade disputes or an abrupt reversal of the recent ebullient financial market conditions represent material risks to the U.S. economy (with concomitant negative outward spillovers). These risks are interconnected with trade policy uncertainty an important factor for both domestic and global financial conditions as well as for business investment decisions. On the other hand, a Congressional agreement that raises budget spending caps or a positive resolution of trade tensions could provide a supportive tailwind to activity.