Business economists think Trump's GDP forecast is too rosy

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An employee helps install a traction motor onto the truck of a General Electric Evolution Series Tier 4 diesel locomotive at the GE Manufacturing Solutions facility in Fort Worth, Texas.

Business economists expect the U.S. economy to pick up speed next year, but not as quickly as Donald Trump promised during the election campaign.

In their latest economic outlook, forecasters surveyed by the National Association for Business Economics said they expect the U.S. gross domestic product to end 2016 with an average annual growth rate of just 1.6 percent, before strengthening next year to a 2.2 percent annual growth rate.

In September, Trump said that his proposed tax cuts and deregulation would add 25 million jobs over 10 years and boost economic growth to 3.5 percent.

"My great economists don't want me to say this, but I think we can do better than that," he said in a speech to the Economic Club of New York.

After a dismal performance earlier this year, U.S. GDP growth picked up sharply in the third quarter, to a 3.2 percent annual rate from just 1.4 percent in the second quarter.

But the NABE panel expects that pace to slow next year, in line with the average pace of growth since the end of the Great Recession.

"The slow pace of growth in recent years may be the 'new normal,' as more than 80 percent of survey panelists estimate that the potential rate of economic growth will be 2.5 percent or lower over the next five years," said NABE President Stuart Mackintosh in a release.

The December survey, conducted between Oct. 31 and Nov. 16, included responses from 52 forecasters. Panelists who sent in their responses before the election results were known were contacted and given the opportunity to revise their forecasts.

Those projections could change based on the progress the Trump administration makes in cutting taxes, boosting federal spending on infrastructure and a wide range of proposed regulatory reforms.

Some two-fifths of the NABE panelists said infrastructure spending is the most important thing the incoming president and Congress can do to boost economic growth over the next four years. Next on the list of top priorities for growth were tax reform (36 percent) and regulatory reform (15 percent). Just 4 percent cited immigration reform.

Inflation is seen picking up a bit — to 1.9 percent next year from an estimated 1.3 percent for all of 2016.

Most panelists also expect the Federal Reserve to raise interest rates by a quarter-point later this month and bump rates higher again next year, to a 1.125 percent federal funds target by the end of 2017.

Few of the forecasters see much risk of a recession in the next two years. They generally expect the pace of hiring to slow a bit, though, with nonfarm payroll growth slowing in 2017 to an average of 168,000 net new jobs a month from the 178,000 monthly pace this year. They expect the jobless year to average 4.7 percent for all of 2017.

Much of the recent strength in the U.S. economy has come from robust consumer spending, thanks to a gradual rise in wages as the labor markets have tightened.

The NABE panel expects real consumer spending in 2017 to grow by an average 2.5 percent on an annual basis, down slightly from 2.6 percent this year.

Housing starts are projected to rise next year to 1.30 million units, up from 1.20 million this year.

The panel expects government spending by federal, state and local governments to rise by 0.9 percent in 2017, up slightly from the 0.8 percent growth this year. They also see the federal deficit widening to $618 billion in the fiscal year ending in September 2017, from $587 billion in fiscal 2016 and $438 billion in fiscal 2015.

They also expect the U.S. trade deficit to widen in 2017 to $585 billion from a projected $550 billion in 2016 and an actual $540 billion in 2015.

They also see productivity growth picking up from two-tenths of a percent this year to 1.1 percent in 2017.