The economy will grow at a sluggish pace for the rest of the year, even as the outlook brightened slightly from a similar forecast made in early February, the nation’s business economists said Monday.
Economic growth is now projected to grow by 2.4 percent this year, up from a 2.2 percent forecast in February. While the pace of new job creation – the most watched indicator – should equal 188,000 per month this year, up from the 170,000 new jobs per month expected earlier this year, that won’t be fast enough to pull the unemployment rate down below 8 percent, the forecasters said.
“We’re seeing housing start to improve, and light vehicle sales are improving,” said Shawn DuBravac, chief economist at the Consumer Electronics Association, who chairs the survey for the National Association of Business Economists. “That’s guided the slight improvement in the overall outlook.” Still, economic growth of just 2.4 percent qualifies as a very slow recovery. The forecast also projected that growth next year would pick up to 2.8 percent.
Growth rates of 2 to 3 percent are usually seen in the latter years of an economic expansion. Early years are usually marked by much faster growth – 4 to 5 percent – and that was missing in the early rebound from the Great Recession.
Some economists involved in the forecast suggest the U.S. has become similar to aging societies like Japan and western Europe, where there are fewer workers per retiree, higher spending on health care and other social services aimed at the elderly and lower levels of consumer spending, which over the past few decades drove economic growth in the U.S.
“Last year, the economists said the long-run economic potential of the U.S. was 2.7 percent annual growth,” said Richard DeKaser, deputy chief economist for the Parthenon Group, a strategic consulting firm based in Boston. “So if we’re at 2.8 percent next year, that’s above potential.”
The huge stock market and housing market losses experienced by tens of millions of Americans is another reason the U.S. has been unable to return growth levels above 3 percent, DeKaser said. “That’s taken a huge toll on consumers, and it’s also taken a huge toll on the financial sector because it’s impaired lending.”
Other economists involved in the survey pointed to the seemingly never-ending parade of events contributing to economic uncertainty. Greece; the fate of the Euro; the U.S. “fiscal cliff” looming at the end of the year, which could chop 3 percentage points off economic growth; the future of economic policy from a changed or unchanged political landscape after the election – there are no shortage of reasons for business leaders to pause and consumers to sit on their wallets.
“There is a tremendous amount of uncertainty, some of which is out of our control,” said Sean Snaith, an economist at the University of Central Florida and a consultant for numerous business clients. “It’s still looking to be a below par recovery over the next couple of years.”
Yet overall uncertainties surrounding tax and spending policies after the election did not weigh down the business forecasters. The median forecast of the 54 economists, which saw consumer spending rising by 2.2 percent this year, pegged it to rise 2.5 percent next year.
Housing is also emerging as a potential bright spot, according to the forecast, although it will remain well below the peaks seen in the last decade. The forecasters predicted housing starts will rise 18 percent to 720,000 units in 2012, up from 610,000 in 2011. Next year, they foresee 850,000 starts, which is similar to what they predicted in February.
The place where uncertainty may be playing the biggest role is in business investment, where the forecast was lowered from 4.2 percent in February to 2.9 percent in May. However, that’s projected to rise to a healthy 5.5 percent growth rate in 2013, which suggests fears about the uncertainties stemming from the fiscal cliff may be overblown.