Economists predicting moderate growth in 2013

[February 25, 2013]  WASHINGTON (AP) -- Business economists expect 2013 will be another year of sub-par growth for the U.S. economy, reflecting uncertainty stemming from the budget battles in Washington and Europe's on-going debt problems. But they think the economy will improve as the year progresses and by 2014 will grow at the fastest pace in nine years.

In its latest survey of top forecasters, the National Association for Business Economics said it expected the economy, as measured by the gross domestic product, to expand at an annual rate of 2 percent this year, slightly worse than last year's lackluster 2.2 percent growth.

For 2014, however, the NABE forecasters believe the economy will be growing at a rate of 2.8 percent, which would be the best performance since 2005. The GDP, the economy's total output of goods and services, shrank in 2008 and 2009 as the country went through the worst economic contraction since the Great Depression of the 1930s.

Since then economic growth has been modest as the economy has been held back by a variety of factors including prolonged unemployment.

The latest quarterly forecast from NABE is based on responses from 49 forecasters gathered from Jan. 28 through Feb. 5. On growth, it represented a slight downgrade from the survey released in December which forecast the economy would grow 2.1 percent this year.

The NABE panelists were pessimistic about the effects the budget battles in Washington would have on growth. Nearly all felt growth would be reduced this year, given the uncertainty surrounding the budget. One-half of the panelists felt the drag would shave less than one-half percentage point from growth while one-third put the drag at between one-half and a full percentage point knocked off growth this year.

The panelists saw the economy strengthening as the budget uncertainty is resolved. They forecast growth in the second half of this year would average above a rate of 2.5 percent and get stronger next year.

"While the NABE forecasters see fiscal threats, they are optimistic that there will be some resolution toward the second half of this year and that will result in an improvement in many of the numbers is 2014," said Nayantara Hensel, an economics professor at the National Defense University in Washington and a member of the NABE forecasting panel.

The next budget deadline will occur Friday when across-the-board spending cuts totaling $85 billion, known as a sequester, are scheduled to go into effect.

Congress and President Barack Obama averted the so-called fiscal cliff at the end of December with a deal that allowed tax rates to rise on individuals making more than $400,000 and families making more than $450,000 per year. That deal also allowed the temporary 2 percentage point cut in Social Security payroll taxes, which was in effect for two years, to expire.

The tax increases in the fiscal-cliff deal, especially the rise in Social Security payroll taxes, will mean slower growth this year. It will mean that a worker earning $50,000 annually will see his Social Security tax go up by $1,000.

That will slow consumer spending, which accounts for 70 percent of economic activity. The NABE panel forecast consumer spending will rise at an annual rate of 1.9 percent this year but will accelerate in 2014 to a growth rate of 2.5 percent.

The NABE panelists were also pessimistic about Europe's on-going budget troubles, which have hurt the U.S. economy by cutting into export sales. Over one-third of the panelists said they believe Spain will need a larger bailout package this year and one-fourth think that on-going debt troubles in Italy will force that country to take bailout support as well.

"The problems in Europe and our own domestic fiscal drama will keep the investment outlook subdued," said Kenneth Simonson, chief economist for the Associated General Contractors of America and a member of the NABE panel.

Among other predictions in the latest NABE survey:

• Unemployment, currently at 7.9 percent, will decline slowly to 7.5 percent by the end of this year and to 7 percent by the end of 2014, with average monthly job growth of 170,000 this year and 193,000 in 2014.

• Inflation will remain modest at around 2 percent, giving the Federal Reserve leeway to keep a key short-term interest rate at a record low near zero this year and in 2014.

• New home construction, which is finally rebounding after the housing bust, will jump 25.6 percent this year and another 17.3 percent in 2014, pushing construction next year to 1.15 million homes.

[Associated Press; By MARTIN CRUTSINGER]

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