Robust demand for fleet sales will push light vehicle sales into the 17.1 million units per year range in 2018, according to the annual economic forecast by economists from the University of Michigan.
The influential U-M forecast, which is used by car makers and suppliers to help preparing forward-looking production schedules, also predicted that light vehicle sales will decline slightly in 2019, to 16.9 million units in each of 2019 and 2020 as interest rates rise and the economy cools gradually during that time frame.
“While the U.S. economy is expected to expand 2.9% for the year after a strong 3.5% growth rate in the third quarter, the effects of federal spending and tax cut boosts will start to diminish in 2019 before fading out in 2020,” the forecast noted.
University of Michigan economists are projecting that overall economic output growth, as measured by real Gross Domestic Product, will register another solid year with 2.7% growth in 2019. Growth will slow to 1.9% in 2020 as the economy cools.
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Growth in real disposable income falls to 2.7% in 2019 and 2020 as employment growth stalls. Consumption is expected to grow by 2.6% in 2019, and then by 2.2% in 2020 as interest rates rise.
“The budding trade war with China makes it hard to interpret the economy’s recent performance,” Daniil Manaenkov, U-M economist, said in the forecast, which has been prepared by U-M’s Department of Economics since 1952. “It is unclear how much of the jumps in inventory investment and imports were due to producers ramping up imports in anticipation of increased tariffs on Chinese products.”
Large boosts in federal spending in 2018 and early 2019 along with business fixed investment, which grew after the Tax Cuts and Jobs Act, helped the economy rev up this year.
Overall, job growth has sped up from 2017 to 2018, along with the faster growth of real GDP. Job growth slows a bit to 2.3 million jobs in 2019 before decelerating to 1.7 million in 2020.
The annual unemployment rate will continue to drift downward from an average of 3.9% this year to 3.5% in 2019 and 3.4% in 2020.
The U-M forecast also predicts that the rate of inflation remains near the Fed’s 2% target. Consumer Price Index inflation is projected to register 2.0-2.1% in 2019–20, after higher oil prices boosted 2018 CPI inflation to 2.5%. U-M forecasters expect the trade war with China to have a minor effect on inflation.
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The U-M forecast also predicts construction of new homes will rise to 1.26 million this year, driven primarily by single-family home starts.