Is the economy finally picking up? «
After more than seven years of sluggish growth, you can’t blame economists for hoping that each new number that comes down the pike might be that all-important harbinger of better times. As a result, they have adjusted their forecasts accordingly.
As my colleague, Jeff Bartash, reports, a rising number of economists now think that the U.S. economy will grow by 3% or more this year — the most in nine years. They base this on a number of developments, mainly reduced uncertainty inside the Beltway.
For one thing, the government is set to be funded for the next two years. This reduces the likelihood that the government will be shut down for lack of money.
For another, there are no new taxes scheduled to be imposed. This means that fiscal drag will not increase any more than it already has.
However, this is an election year and there could yet be a kerfuffle over the debt ceiling, although I doubt it.
All that said, there are a number of headwinds that the economy needs to surmount. First and foremost is retailing. A number of merchants have reported weak earnings in the latest quarter — especially the mid-price chains.
This is not insignificant, since retail sales constitute half of all consumer spending on goods, which, in turn, equals one-third of the U.S. economy. It would be extremely difficult for the economy to log in 3% growth without a healthy consumer sector.
Enlarge Image It’s not hard to discern the reason for the cautious consumer. People are not feeling all that cheerful these days, owing to the fact that their incomes are not keeping pace with inflation.
A key reason for this is that jobs are still hard to find. In December payrolls grew by only 74,000 — one of the smallest increases since the end of the Great Recession. And while some of this might trace to the weather, if you add in November and average the two, you come out with 158,000 — about 50,000 less than in the previous three months.
Meanwhile, the decline in the unemployment rate to a five-year low of 6.7%, like in most months since the recession ended, was due more to people dropping out of the labor force than to job creation.
The percentage of adults either working or looking for a job is down to 62.8%. This is the lowest point since 1978.
Little wonder why there are so many dropouts. The percentage of the workforce unemployed for more than 26 weeks is now the highest since the late 1940s. And most of the jobs that do become available these days are low paying.
Let’s not forget the Federal Reserve. Not only is the central bank reducing ease, it may have to raise interest rates sooner than expected.
Finally, the stock market, a major factor supporting the economy in 2013, is unlikely to put on a repeat performance in 2014.