Clemson's Bruce Yandle's Economic Situation Report
Thursday, December 7th, 2017
Don’t expect a hurricane-related economic slump and don’t plan on the U.S. economy being much different in 2018 than it’s been this year, according to a former Clemson University business dean.
In his quarterly Economic Situation report, Dr. Bruce Yandle says, “if you felt good about 2017, you should look forward to 2018. In other words, don’t expect to see major changes in the nation’s basic economic indicators.”
In addition to his dean emeritus role with Clemson’s business school, Yandle is a Distinguished Adjunct Fellow for the Mercatus Center at George Mason University and former executive director of the Federal Trade Commission. He expects inflation-adjusted “real” gross domestic product to grow by 2.3-2.5 percent in 2018.
“I expect inflation to remain below 2.5 percent for the year,” he added. “Because we do seem to be hitting the bottom of the labor supply barrel, I expect to see wage growth rise from the current 2.5 percent annual rate to 3.0 percent.”
In the report, Yandle said he also expects the Federal Reserve Board to increase the federal funds rate (currently 1.25 percent) to 1.5 percent by the end of the year. He said it could get to 2.5 percent by the end of 2018.
The Fed’s Open Market Committee is scheduled to meet Dec. 12-13.
The steady GDP growth is unlikely to be hampered by the destructive hurricanes that hit the mainland U.S. in 2017, according to Yandle. He said at most, 200,000 or so jobs were temporarily lost due to the storms.
“In August, Texas and Florida together had 22.5 million people employed,” Yandle said. “I estimate that the total effect of the hurricanes merits a correction of the real GDP growth estimate (four-quarter moving average) from 2.2 percent down to 2.0 percent.”
As for the economic impact of turbulent Washington politics, Yandle expects federal tax cuts and deregulation to foster growth, while White House trade policy could hurt.
He also took a look at the friction between economic nationalism and globalism in the report.
“Gains from trade, division of labor, and specialization contribute mightily to higher standards of living,” Yandle said. However, he also pointed out that “new sources of supply bring more intense competition; some industries expand, and others contract. Those caught in the gears of change may understandably blame their unhappiness on globalization.”
He added: “Nationalism translated into economic policy often means reductions in the movement of people and goods across national borders.”
As to whether elected officials can deliver the economic changes they promise – or halt the trends they’re opposed to – Yandle compared the U.S. economy to a driverless car.
“No one person or group is in charge of the economy, though many would like to grab the steering wheel,” he said. “From time to time, new political leaders emerge promising to steer the economy in a new direction, only to learn that bringing meaningful change is extraordinarily difficult.”
Yandle authored his latest Economic Situation report in collaboration with Dr. Patrick McLaughlin and Jonathan Nelson of the Mercatus Center.
The Economic Situation: https://www.mercatus.org/publications/economic-situation-december-2017