Recent federal tax reforms will provide added fuel to a steadily growing economy, but a tight labor market could limit long-term economic expansion, according to the chief economist for the American Bankers Association.
Speaking Thursday at an annual economic forecast summit hosted by the Pennsylvania Chamber of Business and Industry and the Pennsylvania Bankers Association, economist James Chessen said real gross domestic product growth could hit 2.4 percent this year and 2 percent in 2019.
Without the federal tax cuts, which passed before the New Year, projections for GDP growth would be more like 2 percent and 1.8 percent, Chessen said.
The lower tax rates, he said, should prompt businesses to create jobs and boost wages, which many companies already are doing. Companies also are using the tax cuts to fund higher dividend payments and stock buybacks to boost share prices.
And consumers should have more money to buy big-ticket items like cars and homes. Many people paid down debt after the recession, Chessen said, so greater confidence could lead to new loans.
But the biggest problem, and the reason why annual GDP growth will likely not reach 3 percent or 4 percent, is that it’s hard to consistently add the same number of jobs each year when the economy is near full employment, Chessen said. There were nearly 2.2 million jobs created last year in the U.S. and unemployment is around 4 percent.
It’s going to be hard to repeat that or go higher this year, he said. Many companies, including those in construction-related fields, already are struggling to find people.
Home sales have been strong and buyer demand is still rising, but builders can’t find enough skilled workers to put up new homes.
Chessen estimates that about 20 percent of the economy is driven by the housing industry. When people buy homes, they often buy items to fill those homes and they spend money to fix up their homes.
If builders are unable to keep up with buyer demand because they don’t have the workers, the economic recovery should continue on its current slow and steady pace, he said.