June 12, 2013
NEW YORK: The US economy should regain momentum in the latter half of the year, improving from what will likely be a weak second quarter even as the sting of tighter fiscal policy keeps growth restrained, a Reuters poll found.
June 12, 2013
NEW YORK: The US economy should regain momentum in the latter half of the year, improving from what will likely be a weak second quarter even as the sting of tighter fiscal policy keeps growth restrained, a Reuters poll found.
Improving job and housing markets, along with resilient consumer demand, should help to keep the world's largest economy chugging along through 2013, setting it up for a stronger performance next year.
Still, it has to contend with the pressure of greater fiscal austerity out of Washington. Across the board government spending cuts of $85 billion went into effect in March, while the payroll tax holiday expired at the beginning of the year, raising taxes for many Americans.
That belt tightening is expected to slow growth in the current quarter, with the latest data already pointing to an economy that has hit a soft patch.
A Reuters poll of 88 contributors found economists now expect the US economy to grow at an annualized 1.7% in the second quarter, from 1.5% in the previous poll. However, that is slower than the 2.4% growth rate recorded in the first three months of the year.
But the economy will pick back up to a 2.2% growth rate in the third quarter and is predicted to improve from there, hitting 3% by the same time next year.
"The consensus is the US is getting better, healthier, and once the fiscal drag wanes, private sector strength will show through," said Michael Gapen, senior US economist at Barclays Capital.
The effects of tighter fiscal policy will likely be more evenly distributed through the year than some are forecasting, said Gapen, who expects momentum in the private sector will become more evident in the early months of next year.
The unemployment rate is seen averaging 7.5% for the year, only just below the 7.6% most recently reported by the government for May.
Hiring is expected to average 163,000 jobs a month in the second quarter and rise to 200,000 a month by the second quarter of next year, almost unchanged from last month's poll.
However, at a constant rate of May's 175,000 job additions per month, it would take roughly over a year to get US employment back to pre-recession levels.
The improving labour market, along with recent comments from Federal Reserve chairman Ben Bernanke, have stirred worries the Fed could reduce its current stimulus efforts before long.
The Fed has said it will keep the federal funds rate near zero until the unemployment rate drops to at least 6.5 per cent as long as inflation stays close to its 2% target. The central bank has also said it will continue its bond purchases until the labour outlook improves substantially.
Consumer price inflation is expected to rise 1.5% for the year, its lowest yearly rate since 2009, down from predictions of 1.7% in the May poll.
As analysts try to gauge the timing of when the Fed will slow its $85 billion-a-month quantitative easing program, some expect the central bank could begin to cut back by the end of the year.
Still, economists expect the Fed will try not to proceed so quickly that it derails the still-fragile recovery.
"If the US economy sags perilously in response to an announced winding down of QE3, the Fed probably would reinstate QE," said John Lonski, chief economist at Moody's Analytics Capital Markets Research Group.
Courtesy: Reuters
