Will the Economy be More Robust Next Year?

If a report released by the University of Michigan on Thursday is correct, then the U.S. economy will have reasons to be cheerful in 2016.

Predicting the direction of the economy is a notoriously tricky business, but there are those who take a stab at it. If a report released by the University of Michigan on Thursday is correct, then the U.S. economy — and the real estate industry — will have reasons to be cheerful in 2016. Among other things, the report predicts that the national headline unemployment rate will drop below 5 percent for the first time since 2007 (it’s already almost there), and the U.S. economy will create 4.7 million jobs over the next two years — 2.4 million jobs in 2016 and 2.3 million in 2017 — after adding 2.9 million jobs this year.

In fact, the report predicts that unemployment will fall to 4.9 percent next year and 4.6 percent in 2017. U.S. gross domestic product is expected to rise by 2.6 percent next year and 2.9 percent in 2017; not terrific, but better than this year (probably) and 2014, when the increase was 2.4 percent each year. Construction of new homes, both single-family and multifamily, will rise from 1.13 million units this year to 1.31 million next year and 1.47 million in 2017. Again, not terrific by historic standards, but a sizable improvement over the years after the recession.

The forecast report, which is produced annually by the university, was authored by Gabriel Ehrlich, Matthew Hall, Daniil Manaenkov, Ben Meiselman and Aditi Thapar at the Research Seminar in Quantitative Economics in UM’s Department of Economics. “That ordinary performance during 2015 masks a stronger domestic economy slowed by sluggish growth in its trading partners,” Manaenkov noted on the release of the report. “Labor market conditions are improving, wage growth is picking up again, vehicle sales are booming and the housing market is continuing its recovery.”

Also on Thursday, the Conference Board had its own bit of good news to release about the economy. Its Leading Economic Index (LEI) for the U.S. increased 0.6 percent in October to 124.1 (2010 = 100), following a 0.1 percent decline in September, and a 0.1 percent decline in August. “The U.S. LEI rose sharply in October, with the yield spread, stock prices, and building permits driving the increase,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, in a statement. “Despite lackluster third quarter growth, the economic outlook now appears to be improving…. the U.S. economy remains on track for continued expansion heading into 2016.”