Nariman Behravesh is the chief economist at consulting firm IHS Gobal Insight and is responsible for developing the economic outlook and risk analysis for the U.S., Europe, Japan, China, and other emerging markets.
Harlan Levy: Is the U.S. economy just limping along with no clear upswing in the cards?
Nariman Behravesh: No. I think there are clearly positive dynamics in the U.S. economy that will help growth accelerate slightly as the year progresses. Chief among these is that the fundamentals for consumers are improving. By that I mean debt levels are down, income and jobs growth are decent, the stock market is improving, but most important of all, housing has improved, and households and consumers are very sensitive to the housing market.
Housing itself is an important source of optimism. Prices are up, sales are up, housing starts are up. All of this is very good news. We could not have had a recovery of any decent strength without housing.
And then, very importantly, we are in the middle of an energy boom, which is in the midst of a controversy over fracking, but nevertheless is generating so far in the last five years 1.5 million new jobs. And we're set for another 1.5 million in the next five years.
So the bottom line is that there's lots of good news on the economy, and our view is that it will help growth pick up as the year progresses.
H.L.: So what percent growth do you expect for this year and next year?
N.B.: In the last half of 2012 the underlying growth rate was about 1.5 percent. The first half of 2013 will be between 2 and 2.5 percent, and by the end of 2013 and into 2014 it's going to be between 3 and 3.5 percent.
H.L.: Is industrial production and manufacturing making a solid comeback here in the U.S.?
N.B.: It is. It's never a straight-line improvement, but partly thanks to this energy boom and low gas prices and low electricity prices we are seeing the beginning of what we could call a manufacturing renaissance.
Manufacturing is in good shape and will probably continue what is called a competitive stimulus because of the low energy prices.
H.L.: What do you think will happen as the divided Congress faces the sequester -- $1.2 trillion in cuts in defense and domestic programs -- again and the March deadlines on reauthorizing government spending and raising the debt ceiling?
N.B.: The pattern seems to be to go right to the brink, and someone blinks and they work out some sort of compromise. I am reasonably certain that will happen again as we approach these deadlines.
Assuming we continue to raise the debt ceiling, the sequester is the smaller threat to the economy. The reason is that if the sequester goes through it will shave off four to five tenths of a percent this year, which isn't horrible. If, on the other hand, we don't raise the debt ceiling, and if the U.S. defaults, then the financial panic and the economic damage from that panic could be quite bad.
The good news is that it looks like Congress has come to its senses and isn't going to play with fire, which is the debt ceiling and default.
H.L.: Can job growth really accelerate?
N.B.: One of the reasons why job growth has been so weak is this period of extreme uncertainty related to the debt ceiling, problems in Europe, and worries about a hard landing in China.
The good news is that those worries have diminished quite a bit in the past few months. We didn't go over the cliff. Europe didn't have a meltdown, and China didn't have a hard landing. So we dodged a lot of bullets. The reason I raised this is that businesses are feeling less worried than they were before, so they are more likely to spend and hire.
The problems with the jobless rate is that it's also a factor of the labor force and you get this very strange phenomenon where you get more jobs; people become more optimistic about finding a job; they come back to the labor force; and the jobless rate goes up, ironically.
The thing to watch for is the number of jobs being created as measured in the payroll survey. In the third quarter we generated 450,000 new jobs. In the fourth quarter we generated 600,000 new jobs. So that gives you a measure of the fact that the job market is improving, actually.
H.L: Do you see a repeat of the last two years - the global economy just weakly muddling through in fits and starts for a few years?
N.B.: It's very much region-dependent. Certainly Asia seems to be picking up steam. Non-Japan Asia is doing quite well and will get better. Japan is in some difficulty. Europe is in some difficulty. But some emerging markets, Africa and Latin America, are growing at 4 or 5 percent. So there are two major weak spots: Japan and the euro zone. but the rest of the world's economy is doing all right.
H.L: What's ahead for stocks this year and next?
N.B.: Certainly the stock market has been quite euphoric in the last couple of months. But I don't see that euphoria lasting. The market won't crash, but on the other hand, I don't see it rising the way it has in the last few months. Growth, even though it's improving, it's still relatively modest.
H.L.: What's your overall feeling about the global economy?
N.B.: The good news for 2013 is that the risks to the global economy are a little more balanced. There are some upside risks, mainly in North America and Asia, so the downside risks are all geopolitical: the potential for more fiscal arguments in the U.S. and the elections in Italy and Germany which could surprise us in negative ways. There are lots of surprises potentially in store for us. But not all of them are bad.
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