08/22/2016
Four Upside Risks that Could Benefit the Economy

Four Upside Risks that Could Benefit the Economy

While there are always downside risks that could push our economy into recession, there are also upside risks that may cause it to outperform expectations. Economists who have experience forecasting know it’s possible to be wrong in both directions. Here are four factors experts have identified that could surprise us in a good way.

Consumer Surprise
The U.S. economy is paced by consumer spending. While pessimism is now baked into many forecasts, consumers might end up getting less credit than they deserve. Wages are slowly but surely increasing, home prices are recovering all over the country, and the stock market is enjoying a strong run. Saving rates are hovering around 6%, up from about 2% in the years preceding the recession.

Of course, many Americans have missed out on these gains, but a sizable chunk of consumers may have more spending power than currently anticipated.

Revival of Business Investment
Overall business investment in the U.S. has slumped for three straight quarters, with many blaming the current political climate. Another factor is plunging commodity prices, which have caused oil producers to cut back on capital-intensive oil investments.

Since it started to decline in 2014, oil’s price slump has become old news. Considering oil prices are up about 30% since February, a bounce-back in the levels of oil-related investment could be coming.

Low Rates Boost Housing
For an example of how surprises can be good news, look no further than the recent Brexit vote. While it may still end up poorly of the United Kingdom, analysts initially overlooked the potential benefits to the U.S. economy. Following the successful leave vote, global investors sought out the relative security of U.S. assets, which sent interest rates – including mortgage rates – into historically low territory. Another spell of low rates could spark an increase in home construction, in particular.

The effects of these low interests rates may only be beginning, as smaller borrowing costs could spark a swell of credit-sensitive spending.

Stimulus Fading?
Recently, there has been a shift in Congress to stimulate, rather than inhibit, the economy. The effect could put off long-term debt concerns, but in the short-term, it may turn around economic forecasts.

These possibilities are known as ‘risks’ to forecasters, because while they could happen, they aren’t currently in baseline scenarios. While these upside surprises are certainly optimistic, by focusing only on the negative risks, we can be blindsided when things go right.

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