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Bodhi Ganguli

D&B Forecasts Slow but Steady Growth for US Economy into 2017

by Bodhi Ganguli | Dun & Bradstreet Editor

November 23, 2015 | No Comments »

trees with dollar signs growingThe US economy will close out 2015 with a 2.5% growth rate, according to Dun & Bradstreet’s latest economic forecast. Growth in the US economy will accelerate slightly to 2.7% in 2016 and 2.9% in 2017.

The most important driver of D&B’s near-term outlook for the US is the D&B Small Business Health Index (SBHI), which measures small businesses’ health as reflected in their payment patterns, failure rates, and utilization on credit.

The SBHI rose decisively during September 2015, the latest reporting period. Prior to this, the index had essentially stagnated for three straight months. Thanks to a solid 1.5-point jump in September, the SBHI came in at 97.8, the highest reading registered in 2015. This brought the Q3 average of the SBHI to 96.8, more than a point higher than the Q2 average of 95.5, but still somewhat short of the SBHI’s December 2014 peak of 98.7.

In other words, a gradual improvement in the US operating environment in the near term is expected, but small businesses still face modest headwinds. On the plus side, the latest reading puts the index 7.6 points ahead of its year-ago level of 90.2 in September 2014.

Delving deeper into the components of our GDP forecast, consumption — both private and public — will be the primary driver of the economy in the near term. Consumers have led from the front since the recession ended, and, thanks to aggressive deleveraging and low global energy prices, they remain well placed to continue as the most significant driver of growth in 2016.

The outlook for public-sector spending has also brightened recently due to Congress’ bipartisan compromise agreement reached October 30 on the budget and debt ceiling. Among other things, the agreement eliminates the possibility of a government shutdown or a US default through March 2017, thereby removing a drag on the economy from fiscal policy uncertainty. Additionally, the agreement lifts the so-called sequester spending caps and increases discretionary spending by about $80 billion over two years. That amount will be split equally between defense and domestic programs.

On the other hand, the US economy still faces external headwinds from the other two GDP components — net exports and business spending. The strength of the US dollar, in particular, will keep a lid on the contribution from both exports and capital expenditures.

The strong dollar will continue to impede export growth in 2016. An added concern is the slowdown of the broader global economy emanating in emerging markets, especially China, which will further weigh on demand for US exports.

Corporate profits of large multinational companies have also been eroded by the strong dollar, and this is a downside risk for near-term business investment. Compared with prior recessions, business spending has been much weaker during the latest recovery. D&B expects it to be sluggish in the near term.

In summary, D&B expects the US to continue expanding at a decent pace over the next year as the fundamentals of the economy remain healthy. Both our proprietary micro data and macro forecasts suggest that the US will continue to pull the global economy forward over the next few months until broader, truly global expansion gains traction.

Bodhi Ganguli is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in Short Hills, NJ, Bodhi covers sub-Saharan Africa as a contributor to D&B Macro Market/Country Insight Products. He is also a member of D&B’s US Economic Advisory Panel. He received his Ph.D. in economics from Rutgers University and his bachelor’s degree in economics from Presidency College, India.

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