Manufacturers group expects 2.2 percent GDP growth in 2017

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The Federal Reserve raised short-term interest rates last week for only the third time since the Great Recession.

After increasing the federal funds rate in December and March, the Fed raised the rate by another 25 basis points, with a new target range of 1 to 1.25 percent. The Fed noted recent strengthening in the overall economy, including better data on consumer spending, business investment and hiring.

It is widely anticipated that the central bank will raise rates one more time this year, perhaps as soon as its Sept. 19-20 meeting, according to an economic roundup by the National Association of Manufacturers.

Members now see the U.S. economy expanding by 2.2 percent this year, up slightly from 2.1 percent three months ago. The group forecasts 2.1 percent real GDP growth in 2018.

In addition to raising short-term rates, the Fed also seeks to normalize the size of its balance sheet, which has risen above $4 trillion. Before the Great Recession it never exceeded $1 trillion.

The outlook for inflation has been positive for the Fed. Although consumer and producer prices had risen during much of the past few months, costs recently appear to have begun to slow.

The Consumer Price Index increased 1.9 percent year-over-year in May, its first reading below 2 percent since November, and producer prices for final demand goods and services have increased by 2.4 percent since May 2016, easing a bit from April’s 2.5 percent year-over-year pace, which was the fastest since February 2012.

Despite optimism about the Fed’s moves, much of the economic data released last week was disappointing, NAM chief economist Chad Moutray said.

For instance, manufacturing production fell for the second time in the past three months. It was down 0.4 percent in May. Motor vehicle and parts production led the decline; it was down 2.0 percent for the month and was off 1.5 percent for the year to date, as automotive demand has been weaker than desired.

Manufacturing production has risen 1.4 percent during the past 12 months, expanding for the seventh consecutive month. Manufacturers in the New York and Philadelphia Federal Reserve Bank surveys continued to be upbeat in their outlook, with activity strengthening in both June reports.

Consumer confidence also was weaker. The Consumer Sentiment Index from the University of Michigan and Thomson Reuters declined in June to its lowest point since November, according to preliminary data. Political uncertainties played into the waning assessments, with continuing wide disparities in opinions based on partisan affiliation.

Along those lines, retail sales fell 0.3 percent in May. Retail spending has increased 3.8 percent since May 2016.

The housing market also has been softer than desired of late. New housing starts weakened again in May, dropping for the third straight month.

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