Tucson, Arizona 05/05/2016 - The US economy will continue its historic recovery from the depths of the 2008/2009 Great Recession, albeit at an unspectacular pace, according to George Hammond, director at Eller College of Management at the University of Arizona.
"[The forecast] suggests that the US economy has a good chance to continue to grow," Hammond said. "Expansions don't die of old age, something kills them and as long as we are generating solid, unspectacular growth then it actually raises the odds that we will continue to grow in the future."
Low gas prices have provided your average American with an extra $1,000 of disposable income led to a surge in auto sales. However, the strong dollar is providing a strong obstacle, especially for manufactures.
But the largest factor for modest growth is the aging baby-boomer generation, Hammond said. A lack of household formation by the millennial generation is weighing down expansion and boomers are dying out faster than millennials can 'replicate themselves'.
Still, the recovery is facing potential headwinds, especially if the Federal Reserve raises rates too quickly or too much for the market to sustain.
The Fed raised nominal interest rates in December for the first time in nearly a decade and initially targeted four rate hikes in 2016.
But after a shaky start to the new year, Fed chairwoman Janet Yellen and her colleagues lowered the number of projected rates to two and didn't rule-out negative interest rates.
For Hammond, another potential derailment could come from China, especially if Beijing and central bankers cannot prevent a hard-landing. The slowdown in the country's second largest economy has spread to emerging markets and forced the International Monetary Fund to lower its GDP growth target to 3.4 percent for 2016.
Nevertheless, Hammond was optimistic moving forward as the housing market continues to heal and rebalance after the housing crisis, leading the Fed to raise the Federal Funds rate to three precent by 2019.
"The forecast for household growth is to accelerate over the next couple of years," Hammond said while projecting full normalisation by 2020. "The story there is that this is millennial getting out of their parent's basements, getting their own apartments, their own houses."
(Editing by Tom Jennemann)