WASHINGTON — The U.S. economy is expected to expand at a faster pace this year compared to 2012, but there is a belief among a majority of economists that the uncertainty swirling around U.S. fiscal policy will have a negative impact on growth in 2013, according to a survey published Monday.
The latest outlook report from the National Association for Business Economics also shows that those surveyed expect inflation will continue to remain close to 2% through 2014 and that the unemployment rate will show some improvement in 2013 and 2014. Finally, panelists believe that several of the European countries are likely to need bailout packages.
The United States in recent months has bounced from one fiscal crisis to the next, resolving the stand-off over the potentially damaging "fiscal cliff" at the start of last month, only to now be faced with automatic budget cuts — $85 billion for this year alone, $1.2 trillion total — that take effect next week. Then there remains the threat of a government shutdown if Congress fails to pass a stop-gap spending by March 27.
All this and there is still the matter of the debt ceiling, which must be addressed, once again, come May 19.
In light of this, "over 95% of the panelists believe that growth in real GDP in 2013 is likely to be reduced, given the uncertainty surrounding the US fiscal imbalances," the NABE said. It added that over half of the panelists expect that real GDP growth will be reduced by less than half a percentage point, almost one third of panelists believe that it will be reduced by between half a percentage point and one percentage point, and only about 13% suggest that it may be reduced by more than one percentage point.
The NABE forecast sees the economy growing by 2.4% on a Q4/Q4 basis this year up from 1.5% last year, and by 3% for 2014. Growth is seen stabilizing 2.8% to 3.1% between the first quarter of 2014 and fourth quarter of 2014.
Respondents to the February survey see real government consumption expenditures and gross investment will decline by 1% in 2013, steeper than the -0.6% forecast in December. Almost 60% expect sequestration will occur in either partial form (over one third of panelists) or in full form (about a quarter of panelists) on March 1. Over a quarter of panelists believe it will then be further deferred, and about 13% of panelists believe that sequestration will not occur.
The Federal Reserve has vowed that it will keep its aggressive measures to support the economy in place until it sees substantial improvement in the labor market outlook. It has also said it will keep rates close to zero so long as the unemployment rate remains above 6.5% and inflation does not hit 2.5%.
Respondents to the NABE survey forecast that the unemployment rate will average 7.7% in 2013 and 7.2% in 2014, with the unemployment rate declining from 7.8% in the first quarter of 2013 to 7.5% in the fourth quarter of 2013. Nonfarm payrolls are projected to expand by an average of about 155,500 per month in the first quarter of 2013, rising to 182,500 by the fourth quarter of 2013, and ultimately rising to an average of 200,000 by the fourth quarter of 2014.
Jobs being added at a rate of 200,000 a month is the number cited by many within and outside the Fed as indicative of sustainable job growth.
With regard to the Fed's other mandate, price stability, respondents to the NABE survey forecast the Consumer Price Index will grow at 2% in 2013 and at 2.1% in 2014. The price index for personal consumption expenditures, excluding food and energy, is forecast to grow at 1.7% in 2013, and then rise to 1.9% in 2014.
The Federal Funds target rate is expected to remain at 0.125% and that the 10-year U.S. Treasury note yield will be at 2.25% in 2013 and 2.75% in 2014.
Elsewhere in the economy, the economists see an increase in residential investment, housing starts, and home prices. Housing starts are forecast to increase in 2013 to 0.98 million units and to increase in 2014 to 1.15 million units, up from 0.78 million units of housing starts in 2012. House prices, as measured by the Federal Housing Finance Agency's home price index, are forecast to grow from the fourth quarter of 2012 to the fourth quarter of 2013 at 3.5% and is forecast to grow at 4.0% in 2014.
"Although industrial production and nonresidential structures are forecast to grow slightly more slowly, panelists continue to predict strong growth in nonresidential equipment and software and light vehicle sales," the NABE added.
Panelists have lowered their growth estimates for real exports and imports from the last survey in December. They estimate that real exports will grow at 3% in 2013 and 5.6% in 2014, while they see real imports growing 2.3% in 2013 and 4.7% in 2014.
Across the Atlantic, the economists don't expect an end to the Euro zone's struggles any time soon. Over one-third believe Spain will require "a larger bailout package" this year than was previously anticipated, while almost a quarter expect Italy will require a bailout this year. And despite the progress Ireland has made, a fifth of panelists believe the one-time "Celtic Tiger" will require a second bailout package in 2013.
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