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Economic Projections: Economic Growth and Unemployment

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Economic growth

The SEP (Summary of Economic Projections) release in September 2015 had better news for economic growth for 2015 compared to June. The FOMC (Federal Open Market Committee) participants revised their projections on US economic growth in 2015 upwards in September.

The central tendency, excluding the three highest and three lowest projections, for economic growth rose to 2%–2.30% for 2015 from 1.8%–2% projected in June. The range of expected economic growth in 2015 also rose to 1.90%–2.50% in September from 1.70%–2.30% projected in June. However, in a negative, both the central tendency and range of projected economic growth for 2016 and 2017 have seen a slight fall in the September forecast compared to the one made in June.

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The median economic growth rate projected for 2015 improved from 1.90% in the June meeting to 2.10% in the September meeting. This upward rise is explained by the recent rise in the pace of economic growth. However, in successive years and in the long run, the Fed expects the US economy to grow at a slower pace compared to the June projections.

Growth in household spending will play a key role in increasing the economic growth for 2015. This will positively impact related ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Consumer Discretionary Select Sector SPDR Fund (XLY), among others. Consumer discretionary spending has picked up in the past few months. This can result in higher revenue for companies like Walt Disney (DIS), Comcast (CMCSA), and Amazon (AMZN), among others. A quicker rise in wages will help stocks in the consumer staples space.

Unemployment rate

The central tendency of the unemployment rate ranges between 5% and 5.10% in 2015. It’s lower than 5.20%–5.30% in the June projection. The unemployment rate is expected to fall more in 2016. Meanwhile, the median rate of unemployment fell to 5% for 2015 from 5.30% projected in June. Until 2018, the median rate of unemployment stands at 4.80%—lower than projections in June. Also, policymakers believe that the long-term central tendency of unemployment is 4.90%—5.20%.

This shows that policymakers believe that the improvement in the labor market slack indicators will continue. However, wages will need to pick up the pace in order to provide people with the full benefits of being employed and to also help them come out of their homes and spend. This is crucial to support US economic growth.

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