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Election angst hurting US economy

Donald Trump
Kamil Krzaczynski | Reuters
Donald Trump

What's behind the recent slowdown in the U.S. economy? It's the election, stupid.

Some 60 percent of business economists say that uncertainty about the November vote is damaging prospects for growth this year, according to a survey released Monday.

In their latest forecasts, members of the National Association for Business Economics have once again marked down their expectations for this year, pegging the overall growth in gross domestic product at just 1.8 percent. That's down from 2.2 percent in the group's March survey and 2.6 percent in December of last year.

The U.S. economy hit a soft patch in the first three months of 2016, slowing to an annual growth rate of just 0.8 percent, according to the government's latest reporting. Since then, the economic data have been flashing mixed signals.

Consumer spending surged in April, posting the biggest gain in nearly seven years. But Friday's report on the U.S. job market showed the pace of hiring slowed sharply in May, and was weaker than originally reported in the prior two months.

The slowdown comes as businesses are growing increasingly uneasy about the outcome of the presidential election, and the wider uncertainty about the policies advanced by the next occupant of the White House.

That political uncertainty was cited by nearly 60 percent of the economists surveyed as a drag on the U.S. economy this year.

"Businesses are generally prepared to not have everything go their way, but they have a much harder time when they don't know what's going to happen or what to expect," said Greg Daco, head of U.S. macroeconomics at Oxford Economics and a NABE survey analyst.

Some of the specific policy proposals have also raised concerns, including those by presumptive Republican presidential nominee Donald Trump to get tough on U.S. trade partners China and Mexico.

"When you put that type of policy in an economic model you see that the U.S. ends up being a loser if it starts a trade war," said Daco.

Political uncertainty around the world is also a cause for concern, according to the NABE economists. Nearly 1 in 4 cited the rise of nationalist views around the globe as the most important factor holding back the world's economy over the next two years.

Those concerns echoed a report last week from the Organization for Economic Cooperation and Development, which warned that the global economy is stuck in a "low-growth trap" that will require governments to make concerted efforts to break out of.

With businesses and consumers cautious about spending and investing, the OECD forecast global growth at just 3 percent this year, unchanged from 2015, which was the slowest pace since the end of the Great Recession.

The organization cut its U.S. growth forecast for this year to 1.8 percent from its previous forecast of 2 percent.

Economists polled by NABE trimmed their forecasts for growth across a wide range of sectors, from business investment to consumer spending, industrial production and corporate profits.