IMF Executive Board Concludes Article IV Consultation with United States
IMF News, July 12, 2016
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- Published: July 12, 2016
Economic outlook and near-term assessment
- U.S. is in its seventh consecutive year of expansion.
- Recent developments:
- Unemployment rate has fallen to 4.9 percent.
- Household net worth is close to pre-crisis peaks.
- Temporary growth dip in the last two quarters due to lower oil prices (contraction in energy sector investment), strong dollar, and weak global demand weighing on net exports.
- Real household disposable income is growing at 3 percent.
- Housing market is growing at a healthy clip.
- Current fiscal and monetary policy mix is supporting the economy.
- Projections:
- Economy expected to grow at 2.2 percent in 2016 and 2.5 percent in 2017.
- Growth expected to decline steadily to 2 percent over the medium term.
- PCE inflation expected to slowly and moderately rise above 2 percent in 2017–19, before returning to the Federal Reserve’s medium-term target of 2 percent.
- Labor market:
- Remaining labor market gap should close over the projection period.
- Wage indicators have shown only modest acceleration.
Risks to the outlook
- Downside risks are tilted to the downside:
- Uncertainty surrounding implications of the U.K. referendum could trigger continued financial market volatility or further appreciation of the U.S. dollar.
- A more complex downside risk: potential growth rate may be lower than estimated and the output gap smaller than previously estimated — if true, the U.S. economy could soon hit capacity constraints, slow growth, and generate domestic inflationary pressures with negative global spillovers.
- Upside risk:
- Oil-related upside: delayed effect on consumption and a lessening drag from oil-related investment.
- Financial sector vulnerabilities:
- Pockets of vulnerabilities remain, particularly in the asset management and insurance industries, though risks are unlikely to be systemic at the current juncture.
Longer-term challenges and distributional concerns
- Structural headwinds that may weigh on prospective gains in economic well-being:
- Rising share of the US labor force shifting into retirement.
- Aging basic infrastructure.
- Scanty productivity gains.
- Labor markets and businesses less adept at reallocating human and physical capital.
- Secular trends in income and living standards:
- Labor’s share of income is around 5 percent lower today than it was 15 years ago.
- The middle class has shrunk to its smallest size in the last 30 years.
- Income and wealth distribution are increasingly polarized.
- Poverty has risen.
- If left unchecked, these forces will continue to drag down both potential and actual growth, diminish gains in living standards, and worsen poverty.
Executive Board assessment and guidance on monetary and fiscal policy
- Directors welcomed continued recovery, strong fundamentals, and supportive macroeconomic policies but noted important downside risks and uncertainties, including slower potential growth and a stronger dollar.
- Monetary policy:
- Pace of interest rate normalization should remain data-dependent, proceeding cautiously along a gradual upward path.
- Some Directors saw merits in accepting a temporary overshooting of the medium-term inflation target until the expansion is solidly established; many Directors were concerned about risks of de-anchoring inflation expectations and eroding monetary policy credibility.
- Directors welcomed authorities’ commitment to closely monitor economic and financial developments and to maintain clear, effective communication on interest rate adjustment.
- Fiscal policy:
- Near-term fiscal policy appropriately geared toward supporting growth and job creation.
- Need for lasting institutional solutions to enhance the budget process and minimize fiscal uncertainties.
- Urgency of addressing demographic trends, entitlement spending, and deteriorating infrastructure.
- Value seen in calibrating a credible medium-term consolidation plan to guide fiscal policy toward debt sustainability.
Structural and social policy recommendations
- Short- and medium-term priorities urged by Directors:
- Boost federal infrastructure spending.
- Further reform health care and pension systems.
- Reach agreement on skill-based immigration reform.
- Advance pro-poor policies:
- Expand tax credits to low-income households.
- Raise the federal minimum wage.
- Expand paid-family leave and childcare assistance.
- Complementary measures to boost long-term growth:
- Comprehensive reform of the U.S. corporate income taxation.
- Further progress on trade integration.
Financial sector recommendations
- Continue implementation of recommendations from the 2015 Financial Sector Assessment Program.
- Complete regulatory reforms under the Dodd-Frank Act.
- Close monitoring and placing the insurance sector under consolidated national regulation and supervision.
- Improve data collection and reporting in the nonbank sector.
- Strengthen requirements on beneficial ownership.
- Maintain dialogue and support capacity building in countries affected by the withdrawal of correspondent banking relationships.
Selected economic indicators and key statistics (as presented)
- Real GDP (percentage change): 2015 = 2.4; 2016 = 2.2; 2017 = 2.5; 2018 = 2.3; 2019 = 2.0; 2020 = 1.9; 2021 = (not listed).
- Net exports (contribution to real GDP growth, percentage points): 2015 = -0.6; 2016 = -0.3; 2017 = -0.5; 2018 = -0.2; 2019 = -0.1.
- Total domestic demand (percentage change): 2015 = 3.0; 2016 = 2.9.
- Final domestic demand (percentage change): 2015 = 2.8.
- Private final consumption (percentage change): 2015 = 3.1; 2016 = 2.7.
- Public consumption expenditure (percentage change): 2015 = 0.4; 2016 = 1.2; 2017 = 1.4; 2018 = 1.5; 2019 = 1.0; 2020 = 1.3.
- Gross fixed domestic investment (percentage change): 2015 = 3.7; 2016 = 4.3; 2017 = 3.8.
- Private fixed investment (percentage change): 2015 = 4.0; 2016 = 5.0; 2017 = 4.2.
- Equipment and software (percentage change): 2015 = 0.5; 2016 = 4.4.
- Intellectual property products (percentage change): 2015 = 5.7; 2016 = 4.1.
- Nonresidential structures (percentage change): 2015 = -1.5; 2016 = -1.9; 2017 = 3.4; 2018 = 1.8.
- Residential structures (percentage change): 2015 = 8.9; 2016 = 10.0; 2017 = 7.3; 2018 = 5.9.
- Public fixed investment (percentage change): 2015 = 1.7.
- Change in private inventories (contribution to real GDP growth, percentage points): 2015 = 0.2; 2016 = 0.0; 2017 = 0.1.
- Nominal GDP (percentage change): 2015 = 3.5; 2016 = 3.2; 2017 = 4.6.
- Personal saving rate (% of disposable income): 2015 = 5.1; 2016 = 5.4; 2017 = 4.7; 2018 = 4.5.
- Private investment rate (% of GDP): 2015 = 16.8; 2016 = 16.7; 2017 = 17.1; 2018 = 17.3; 2019 = 17.4.
- Unemployment rate (percent): 2015 = 5.3; 2016 = 4.9; 2017 = 4.8.
- Labor force participation rate (percent): 2015 = 62.6; 2016 = 62.8; 2017 = 62.9; 2018 = 62.7; 2019 = 62.5; 2020 = 62.3; 2021 = 62.1.
- Output gap (% of potential GDP): 2015 = -1.1; 2016 = -0.8.
- CPI inflation (q4/q4): 2015 = 1.1; 2016 = 2.6.
- PCE Inflation (q4/q4): 2015 = 2.1.
- Federal government balance (% of GDP, fiscal years): 2015 = -2.6; 2016 = -3.0; 2017 = -2.8; 2018 = -2.5; 2019 = -3.2; 2020 = -3.4.
- Debt held by the public (% of GDP): 2015 = 73.6; 2016 = 76.0; 2017 = 75.6; 2018 = 75.9; 2019 = 76.4; 2020 = 77.0.
- General government net lending (% of GDP, calendar years): 2015 = -3.8; 2016 = -3.6; 2017 = -3.7; 2018 = -3.9.
- Primary structural balance (% of potential GDP): 2015 = -1.0; 2016 = -1.6; 2017 = -1.4.
- Gross debt (% of GDP): 2015 = 105.7; 2016 = 107.9; 2017 = 107.8; 2018 = 107.4; 2019 = 107.5; 2020 = 107.7.
- Interest rates (percent):
- Three-month Treasury bill rate: 2015 = 0.3; 2016 = 0.8; 2017 = 1.6.
- Ten-year government bond rate: 2015 = 3.3.
- Current account balance (% of GDP): 2015 = -2.9; 2016 = -3.5; 2017 = -4.0; 2018 = -4.1.
- Merchandise trade balance (% of GDP): 2015 = -4.2; 2016 = -4.3; 2017 = -4.6; 2018 = -4.7; 2019 = -4.8; 2020 = -5.0.
- Export volume (NIPA basis, goods, percentage change): 2015 = 5.8; 2016 = 6.1; 2017 = 3.9.
- Import volume (NIPA basis, goods, percentage change): 2015 = 8.2; 2016 = 6.4; 2017 = 5.6.
- Net international investment position (% of GDP): 2015 = -41.0; 2016 = -44.2; 2017 = -47.9; 2018 = -51.7; 2019 = -55.8; 2020 = -59.4; 2021 = -63.0.
- Gross national saving (% of GDP): 2015 = 18.8; 2016 = 17.6; 2017 = 16.9.
- Gross domestic investment (% of GDP): 2015 = 20.2; 2016 = 20.1; 2017 = 20.4; 2018 = 20.6; 2019 = 20.7; 2020 = 20.8.
- Private components (selected): Business saving/personal figures reported as Private = 19.9 (2015), 18.9 (2016), 18.0 (2017), 17.8 (2018), 17.9 (2019); Personal = 16.1 (2015), 14.8 (2016), 14.2 (2017), 14.5 (2018).
Source: IMF Executive Board press release, "IMF Executive Board Concludes Article IV Consultation with United States", July 12, 2016.