PRLog (Press Release)– Mar 08, 2011– News US Economic Forecast The End of 2011 Will Be Stronger
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US Economic Forecast The End of 2011 Will Be Strong
Economists like to talk about the shape of the economic recovery. Ideally, it would have been V-shaped: a rapid, dramatic upswing following the recession. Several months into the recovery, which technically began in June 2009, economists were predicting a still-not-shabby U-shape. All held out hope that it wouldn't be an L-shaped recovery.
At the 47th Annual Economic Forecast Luncheon, co-sponsored by the economics department at the W. P. Carey School of Business and JPMorgan Chase, two prominent national economists shared their thoughts about the shape of things to come -- in 2011 and beyond.
Joel Naroff, president of Naroff Economic Advisors, Inc. said that there is no letter to describe the kind of economic rebound this is shaping up to be. Clearly, he said, it has not developed in the V-shape we would have liked. "The recovery is a race and though we all wanted the hare we wound up with the tortoise."
But a V-shaped recovery was "never possible given what caused the recession," Naroff said. Past V-shaped rebounds were led by the housing and financial markets -- two areas that have this time been drags on the economic recovery. "In previous recoveries the first quarter or two we would see increased housing activity. And typically banks emerged from recessions ready to extend credit, which powered growth. Neither of those is happening now."
So instead Naroff sees the recovery as an inverted square root sign. "We're on the plateau now, where growth is somewhere between modest and moderate. That's likely to continue for a while. But the factors that have been holding the economy back are in the process of being eased," Naroff said. He predicts a big surge in growth next year, before a small downward readjustment to a "new normal" rate of growth.
James Glassman, managing director and senior economist at JPMorgan Chase, calls the shape of the current recovery "frustrating -- if that is a shape." He explained, "Frankly, most things will look like a 'V' shape on paper in the history books, but that reveals little about the feel."
Like Naroff, Glassman sees the current sluggish recovery as relatively temporary -- one that will turn into robust growth in the latter half of next year. "Ironically, despite recent downbeat news, and the possibility that the U.S. economy may grow no faster than 3 percent for the rest of 2010, a number of new developments are pointing to a better economic performance in 2011 than was predicted only three months ago," Glassman said.
Forecasted Growth In 2011:
While both Naroff and Glassman see the economic recovery as on relatively firm footing, they said that the trajectory is not yet straight upward. Naroff forecasts GDP growth in the 2 percent to 2.5 percent range until mid-2011, when he predicts growth will spike to between 4 percent and 5 percent. Glassman forecasts 2 percent GDP growth in the first and second quarters next year, 3.5 percent growth in the third quarter, and 4 percent growth in the fourth quarter.
For Naroff, the biggest factor keeping the economy back right now is the job market. But he believes that it is improving. "It will be another three, four, six months, but that labor market improvement will become clear," he said. Comparing one month to the previous one doesn't show much improvement, Naroff explained, but comparing this year to last makes "massive" improvements quite clear. "Six months from now, we'll see even bigger improvements."
Once improvements in the job market become clear, Naroff said, that will be the trigger that ignites growth. "Once people begin believing their jobs are not in danger, confidence will rise. That will lead to a loosening of the purse strings, generating more spending. The rising demand will require firms to add workers. As hiring increases, job security, consumer confidence, and household spending will improve further," Naroff explained, adding, "That is already starting to happen."
While Naroff sees negative perceptions about the labor market as the biggest reason for still-sluggish growth this year and the first half of next, Glassman said that it will be the unwinding of fiscal stimulus that will slow growth in the first half of 2011 (he predicts growth will slow from an average of about 3 percent this year). "Particularly in the state and local sectors, the federal stimulus bought some time, but as that stimulus winds down, governments will have to tighten spending."
But Glassman, too, sees improvements on the horizon -- "developments pointing to a better economic performance in 2011 than was predicted only three months ago." That is in large part, he said, due to the fact that "markets have finally embraced the idea that the Fed will hold its policy rate down for longer than earlier assumed" and to the Fed's decision to buy Treasury securities, as well as hints that Congress will extend the tax cuts set to expire at the end of this year.
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