Experts forecast slower US economic growth
Pittsburgh (Jun 26) A growing number of economists are cautioning that the U.S. economy will grow more slowly than it has in the past, with one consulting firm recently calling growth rates of 3 percent "a relic of economic history."
IHS made that characterization last week as part of a long-term forecast that the U.S. gross domestic product -- the broadest measure of what the economy produces -- will grow at an average annual pace of 2.3 percent.
While that seems robust compared to the 0.2 percent annual rate the GDP declined at in the first quarter, it is well below the 3.4 percent rate the U.S. economy grew at between 1980 and 2000, according to Peter Morici , a University of Maryland economist.
If economists are right, that means "middle class children, on average, are going to have lower standards of living than their parents," Mr. Morici said.
GDP measures how much an economy can produce. How fast, or slow, GDP grows is determined by how many people are employed, how much private and public money is available for investment, and productivity growth, IHS senior research director Sarah Anderson said.
Faster growth means more opportunities. "In a more dynamic economy, there's more upward mobility," Ms. Anderson said.
She and other economists say the looming retirement of baby boomers and the smaller number of young people entering the work force is one reason the economy is expected to grow at a slower pace. The labor force grew 1.5 percent during the 1980s and 1990s, when a lot of women went to work, said T. Rowe Price chief economist Alan Levenson said. It's now growing at about a 0.5 percent rate, he said.
Economists also point to a slow down in business investments that spur productivity. Some blame government regulations, saying companies are less inclined to invest because complying with the regulations reduces the return on their investment. Others say the recession and volatility in financial markets have made businesses more cautious.
"The recession has been over for a while and this traditional investment hasn't picked up in a significant way," said Mark Sniderman , executive-in-resident at Case Western Reserve University's Weatherhead School of Management .
Mr. Sniderman said diminished interest among businesses in investing in new products, equipment and plants is reflected in the growth of merger activity, stock buybacks and dividends. Companies see those options as providing better returns than traditional investments, he said.
Concerns about government budget deficits are crimping the amount of public money available for investment in research, education and infrastructure, investments that can boost economic growth. Mr. Sniderman said public spending on education could address one of the main concerns that companies cite for not being able to grow: the lack of skilled workers.
"There are plenty of reasons to be skeptical" about government spending, Mr. Sniderman said. "Unfortunately, that kind of attitude can lead to ignoring so many opportunities."
The chronic trade deficit, which topped $500 billion last year, also curbs GDP growth.
A 6 percent drop in exports during the first quarter was a major reason GDP contracted during that period. The strength of the U.S. dollar and currency manipulation by China and other countries contribute to the trade deficit, Mr. Morici said.
"That has exported a lot of manufacturing jobs and those people have not been employed in other places," he said.
Source: KitcoNews
