U.S. economic growth likely to decelerate further in 2020

The U.S. economy is likely to decelerated further in 2020 as a whole as the effects of fiscal and monetary stimulus wane, consumer spending eases slightly, and labor market momentum decelerates, noted Barclays in a research report.

Several risks threatening the U.S. rebound last year have since alleviated that the economy is expected to remain in expansion. However, this late in the business cycle, and with no further policy stimulus in the horizon, trend-like growth of around 2 percent is expected. Housing activity is expected to be a bright spot.

After weighing in on growth throughout 2018 and the first half of 2019, the contribution of residential investment to GDP growth turned positive in the third quarter of 2019, and it is expected to consistently stimulate growth in 2020. Recent solid reports on housing starts and home sales data further underpin this view, said Barclays.

However, the economy is unlikely to have a smooth sailing and is expected to see some near-term volatility and risks to growth coming from manufacturing. Just as the global manufacturing deceleration was indicating signs of stabilization, U.S. domestic production appears set be impacted by Boeing stopping production of the 737 MAX. The stoppage is expected to be extended to at least until the summer.

“We now expect Q2 GDP growth to be about 50bp lower than before, at 2.0 percent q/q saar, as a result of a drag from inventories and net trade contribution, as well as slower business fixed investment growth. With 737 MAX production now assumed to resume in Q3, we expect GDP growth to then rebound to 2.5 percent. These effects assume that there are no spillovers to the US economy apart from lost production by Boeing and its domestic suppliers; in our view, a longer stoppage amplifies this risk”, added Barclays.