Momentum In Past Year A Good Sign For Economy In 2016

Dec 29, 2015

A PNC economist previews what to expect financially in 2016.
Credit Linus Bohman / flickr

The U.S. economy is finishing 2015 on an upswing, according to Pittsburgh-based PNC Chief Economist Stuart Hoffman and he thinks that will continue into 2016.

“Wages had been stalled at around 2- to 2.25-percent [growth]. We saw a little bit of an uptick in the later half of this year, and we think we will see a little faster, bigger gain in 2016,” Hoffman said.  “Maybe where wages rise … closer to 3 percent.”

Hoffman said he is hopeful that the wage gains will “broaden out” to include middle class and lower wage workers, which could help the housing market and might even encourage more millennials to purchase their first homes.

Hoffman said job creation will slow a bit in the new year with an estimated 2 million new jobs being created nationally in 2016, but he thinks that will be enough to lower the unemployment rate to 4.7 percent by the end of the year. In southwestern Pennsylvania, he said he expects to see about 1,500 new jobs created, which is about a 1 percent gain.

The energy sector, traditionally the region's biggest driver of new jobs, will likely drag in 2016 as natural gas prices stay low, he said, but should be offset by gains in travel and tourism, “eds and meds,” financial services and construction. 

One of the big stories for the economy in 2015 was the long-anticipated increase in interests rates. In the coming year, Hoffman said he expects a few more rate hikes, but nothing shocking, he said. He called for a gradual increase with an additional quarter-point increase in March and June, and nothing more until after the presidential election.

By the end of the year, Hoffman said he expects a rate of 1 to 1.25 percent with mortgages close to 4.25 percent and the 10-year treasury note returning 2.5 to 2.75 percent. Those moves should keep inflation under 2 percent, he said.

In the equity markets, Hoffman said the country is still rebounding from the 15-percent dip the Dow took in September, but he believes the index will continue to recover in the early months of 2016.

“But I would not rule out another correction, another 10-plus-percent swan dive in the market some time in 2016," he said. "But like this year, we at PNC would see it as a buying opportunity.”