U.S. Economic Forecast: GDP, Inflation, and Jobs in 2018
This paper presents an economic forecast of the United States economy for the first and second quarters of 2018, drawing on macroeconomic indicators from the fourth quarter of 2017. Key areas examined include GDP growth rate, inflation and core inflation, food and energy prices, unemployment and underemployment, asset prices, the business cycle, the value of the U.S. dollar, and the implications of recently adopted fiscal and monetary policies. The analysis projects moderate GDP growth approaching 3%, steady inflation around 2.1–2.4%, and a stable unemployment rate of 4.1%, while also discussing the expected strengthening of the dollar and a positive business cycle outlook driven by increased government spending and Federal Reserve interest rate policy.
- Introduction to Economic Forecasting: Defines forecasting and outlines paper scope
- Forecast of Gross Domestic Product: Projects moderate GDP growth near 3% for 2018
- Forecast of Inflation, Core Inflation, Food, and Energy Prices: Projects inflation rising to 2.1–2.4% in 2018
- Forecast of Unemployment and Underemployment: Expects unemployment to hold steady at 4.1%
- Forecast of Asset Prices and the Business Cycle: High asset prices and near-zero recession risk forecast
- Monetary and Fiscal Policies and Their Implications: Analyzes spending and interest rate policy effects
- Forecast of the Value of the U.S. Dollar: Expects dollar to strengthen on rising interest rates
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What makes this paper effective
- Grounds every forecast in specific, cited data points from Q4 2017, giving the projections a concrete empirical basis rather than relying on vague trends.
- Maintains a consistent structure across all forecast sections — stating the current indicator, explaining the driver of change, and then projecting Q1 and Q2 values — which makes the paper easy to follow and compare across economic dimensions.
- Integrates both supply-side factors (energy prices, labor market conditions) and demand-side factors (consumer spending, tax cuts) to build a well-rounded macroeconomic picture.
Key academic technique demonstrated
The paper demonstrates applied macroeconomic analysis by systematically linking lagged indicator data to forward-looking projections. Each section uses a base-period observation (e.g., Q4 2017 unemployment at 4.1%) as an anchor, then applies economic reasoning — such as near full employment limiting further job growth — to justify the forecast. This technique mirrors the methodology used by professional forecasting bodies and shows how quantitative indicators translate into qualitative economic outlook statements.
Structure breakdown
The paper opens with an executive summary, then moves into a formal introduction defining economic forecasting and its purpose. Six thematic forecast sections follow — GDP, inflation, unemployment, asset prices and the business cycle, monetary and fiscal policy, and currency value — each self-contained but contributing to a cumulative picture of U.S. economic conditions. A brief conclusion synthesizes the overall outlook before the reference list.
Introduction to Economic Forecasting
Economic forecasting is a term used to describe the process of predicting the future state of an economy through a series of different indicators. Economic forecasting is not only vital for understanding the probable future of the economy, but is also utilized by policymakers when making decisions that seek to promote future economic growth. Some of the most important concepts included in economic forecasting are future gross domestic product (GDP) growth rate, industrial production, inflation rates, consumer confidence, interest rates, and unemployment rates. Economic forecasts are prepared for different time periods — such as quarterly or annually — depending on the specific goals of the forecast. This paper provides an economic forecast of the U.S. economy using different indicators for the first and second quarters of 2018. The various indicators are used to predict the performance of the United States economy in 2018, based on data from the fourth quarter of 2017. The forecast also includes a discussion of the impact of adopted monetary and fiscal policies on the United States economy.
Forecast of Gross Domestic Product
Gross domestic product growth rate is one of the most important aspects for predicting economic growth and development. Gross domestic product (GDP) is the foundation upon which governments and businesses make decisions regarding spending, hiring, investments, and policies that affect aggregate economic activity in a country. GDP refers to the monetary measure of the market value of all finished goods and services produced within a specific time period, either quarterly or annually. It is regarded as the best way to evaluate a country's economy, since it represents the total value of all products and services produced by businesses and individuals within the country. As such, GDP is one of the basic indicators used to examine the status and health of a nation's economy.
Based on seasonally adjusted annual rates in the fourth quarter of 2017, the gross domestic product growth rate is expected to increase moderately in the first quarter of 2018. The prices of goods and services purchased by residents in the United States increased by 2.5% in the fourth quarter of 2017. It is expected that these prices will continue to increase in the first quarter of 2018 to approximately 3.0%. The expected increase in prices is also accompanied by the anticipated rise in food and energy prices. In the fourth quarter of 2017, food prices increased by 0.1% while energy prices increased by 28.2%. A minimal increase of approximately 0.5% and 15.0% in the prices of food and energy respectively is expected in the first quarter of 2018. The projected GDP growth will also be fueled by ongoing growth in consumer spending, which has prompted businesses to add capacity in response. Moreover, the near full employment of the U.S. labor market as of the last quarter of 2017 will contribute to the moderate acceleration of GDP in the first quarter of 2018.
In the second quarter of 2018, gross domestic product is expected to continue growing moderately. Even though the first quarter of 2018 could be relatively sluggish due to a seasonal quirk, business and consumer confidence remains strong while the labor market is at near full employment. GDP growth in the second quarter of 2018 will also be fueled by the impact of the $1.5 trillion income tax package on households established by the Trump Administration. These tax effects, enacted in January, will begin to have significant impacts on the paychecks of many households in the second quarter of the year. The increase in GDP growth during this period will contribute to annual economic growth because of increased government spending, strong business and consumer confidence, increased consumer spending, and lower individual and corporate taxes.
According to Bachman and Majumdar (2018), GDP growth rate in the second quarter of 2018 could increase by approximately 3.0% for several reasons. First, the near full employment of the labor market implies that additional economic stimulus will be experienced as higher inflation rather than more real output. Second, interest rates during this period are likely to increase faster than expected because of increased demand, which will relatively restrain demand for debt-financed products and services such as cars and homes. Third, capital costs will have relatively minimal impact on holding back investment since they have been low for an extended period of time. Net exports and inventory spending, which were sluggish in the fourth quarter of 2017, are expected to increase in the second quarter of 2018 after rebounding in the first quarter. The Bureau of Economic Analysis reports that net exports bounced back to become a positive contributor to GDP growth in the first quarter of the year by adding 0.2 percentage points, following a subtraction of 1.16 percentage points from the GDP growth rate in the last quarter of 2017 (Moutray, 2018).
Forecast of Inflation, Core Inflation, Food, and Energy Prices
The second important macroeconomic concept in the development of an economic forecast is the inflation rate. Inflation rates are determined based on the Consumer Price Index (CPI), which measures the total cost of goods and services purchased by an ordinary consumer. Through this process, economic forecasters are able to convert dollar figures into meaningful indicators of purchasing power. The CPI is used to evaluate changes in the cost of living over a given period of time and to determine inflation rates, which are defined as an increase in the average level of prices for goods and services.
In the fourth quarter of 2017, consumer prices in the United States increased by 0.1% based on seasonally adjusted rates provided by the Bureau of Labor Statistics (2018). It is expected that the Consumer Price Index will increase in the first quarter of 2018 following stronger government spending and tax cuts. Consumer prices in the United States have also continued to grow over the past 12 months. Based on the growth in CPI during the last quarter of 2017, consumer prices in the country are expected to grow by 1.9% in the first quarter of 2018. Therefore, inflation rates are projected to grow by approximately 2.1% in the first quarter of 2018. This expected growth is also influenced by monthly indicators showing that inflation rates have increased from 0.2% to 0.5% amid wider cost increases. In the second quarter of 2018, inflation rates are expected to grow by 2.4% because of the 0.2% and 2.4% increase in consumer prices in February and March respectively.
Similarly, core inflation rates are also expected to grow by 2.1% in the first quarter of 2018. Core inflation rates have been increasing in the United States since the fourth quarter of 2017; specifically, in the last quarter of 2017, core inflation rates increased by 1.8% because of stronger macroeconomic conditions and increased consumer spending. The increase in core inflation rates is expected to continue into the second quarter of 2018, reaching approximately 2.3%. This will be boosted by an increase in core consumer prices as well as expected increases in food and energy prices.
As previously noted, food prices in the last quarter of 2017 increased by 0.1% while energy prices increased by 28.2%. Given the rise in the prices of goods and services, food prices are expected to increase by approximately 0.5% and energy prices by nearly 15% in the first quarter of 2018. In December 2017, the food index increased by 0.2% due to a 0.9% increase in the index for poultry, eggs, fish, meats, bakery products, and cereals (Bureau of Labor Statistics, 2018). After a 3.9% increase in November, the energy index decreased by 1.2% despite gains across all energy components in December — the gasoline index rose by 10.7%, the electricity index by 2.6%, and the natural gas index by 4.7%.
A marginal decrease in food and energy prices is expected in the second quarter of 2018 based on monthly indicators for March 2018. Energy prices are projected to decrease due to a decline in the cost of gasoline and softer underlying inflation. Gasoline prices in the United States have been increasingly volatile, particularly in the last quarter, which signals an anticipated decline in energy prices in the second quarter. Similarly, food prices have remained volatile, suggesting a potential decline in the second quarter of 2018. The expected decline in food prices during this period will also be influenced by the anticipated increase in food inflation rates of approximately 1.8%.
References
Bachman, D. & Majumdar, R. (2018, March 13). United States economic forecast – 1st quarter 2018. Retrieved May 1, 2018, from https://www2.deloitte.com/insights/us/en/economy/us-economic-forecast/2018-q1.html
Board of Governors of the Federal Reserve System. (2018, February 23). Monetary policy report submitted to the Congress on February 23, 2018, pursuant to Section 2B of the Federal Reserve Act. Retrieved from the Federal Reserve website: https://www.federalreserve.gov/monetarypolicy/2018-02-mpr-summary.htm
Bureau of Labor Statistics. (2018, January 12). Consumer price index – December 2017. Retrieved from U.S. Department of Labor website: https://www.bls.gov/news.release/archives/cpi_01122018.pdf
Mousina, D. (2018, February 16). Econosights – US fiscal policy in 2018/19 – making sense of the recent changes. Retrieved May 1, 2018, from https://www.ampcapital.com/site-assets/articles/latest-news/us-fiscal-policy-making-sense-of-recent-changes
Moutray, C. (2018, April 27). U.S. economy grew 2.3% in first quarter, boosted by strong growth in business investment. Retrieved May 1, 2018, from
Nallari, R. (2010, March 1). Rethinking macroeconomic theory and policy. Retrieved May 1, 2018, from
Nelson, E. (2017, December 30). The U.S. dollar just had its worst year in more than a decade, and 2018 will bring more of the same. Retrieved May 1, 2018, from https://qz.com/1164158/the-us-dollar-just-had-its-worst-year-in-more-than-a-decade-and-2018-will-bring-more-of-the-same/
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