The Congressional Budget Office (CBO) projects that the economy will continue to expand over the next two years, virtually eliminating underused resources in the economy.
CBO projects that U.S. GDP will grow by 2.3 percent this year, and 1.9 percent next year, continuing its expansionary pace from the last few years. Consumer spending is expected to be the biggest catalyst for economic growth, as it has been typically in previous years. Consumer spending accounts for over two-thirds of economic output.
Currently, the American labor market has a fair amount of “slack,” a term used to describe a labor market that has fewer jobs than workers. The number of people working only part time for economic reasons is still alarmingly high, at nearly 5.7 million, indicating slack in the labor market. CBO expects this slack to “completely disappear,” by 2018, “as the growth in output heightens the demand for labor.” Wages are expected to rise due to the increased demand for labor, as firms compete for an ever shrinking pool of workers.
Increasing demand for goods and services in the economy is expected to drive up the demand for labor, as more laborers are needed to meet consumer needs. A falling labor force participation rate raised concerns about future economic health, but the CBO expects the downward trend to change within the next two years. As more workers are drawn into the labor force to meet the increasing demand on firms to produce goods and services, the stronger economy is expected to mitigate the downward trend in the labor force participation rate.
The unemployment rate is expected to fall in the next two years as economic growth is expected to boost hiring. Another key factor contributing to the projected growth rate is the increase in mining investment, which is largely a result of higher oil prices after OPEC agreed to decrease global oil production in December. (RELAED: OPEC Announces First Oil Cut Since ’08)
There are some potential downsides to the growing economy. Higher inflation and higher interest rates are expected, the CBO reports.
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