Discussion: (1 comment)
Comments are closed.
The public policy blog of the American Enterprise Institute
View related content: Pethokoukis
It was a sour New Normal forecast for the U.S. by global manufacturing giant Caterpillar in its earnings report today. A few highlights:
— In the United States, the Federal Reserve’s new emphasis on employment, along with signs that banks are increasingly willing to lend, are positives for private sector economic growth. Overall, we expect about 2 percent economic growth in the United States for 2013.
— U.S. construction activity, which is coming off a 30-year low, is expected to fare better in 2013. Low mortgage interest rates, increasing employment and a near record low inventory of new homes will likely lead to an improvement in housing starts to about 950 thousand units in 2013. We expect nonresidential construction will benefit from lower vacancy rates, aging stocks and favorable interest rates.
— We believe that the Eurozone is the most significant risk to our 2013 economic outlook. Economic policies in Europe have led to another recession and intensified pressure on the Euro. In addition to concerns about growth, we believe there is risk that some countries may pull out of the Euro.
— The United States faces substantial economic risk as tax increases and government spending cuts will occur unless the government acts to prevent them from taking effect. While we expect that the government will act, the longer it takes and the more divisive the solution, the more it will hurt business and consumer confidence.
— In assessing the last two years, we concluded the financial crisis left many economies in fragile condition and that quickly raising interest rates once the recovery started was a bad idea. Although most central banks retreated, the impact contributed to a decline in world economic growth from about 4 percent in 2010 to less than 2.5 percent in 2012. Business confidence deteriorated and another round of investment cutbacks is beginning. We are concerned that central banks will be too quick to raise interest rates when growth improves, again preventing the world economy from completely recovering from the financial crisis.
Again, a year of 2% GDP growth would extend an anomalous streak, by historical standards, of glacial economic growth for the United States. Figure another year where job growth would be roughly 150,000, enough to sop up population growth but not enough to whittle away the 13 million job gap. And given the fiscal cliff issues, that appears to be a forecast with considerable downside.
Comments are closed.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research