- A new survey indicates that more economists have dropped their forecast for economic growth this year.
- There still is reluctance to see the unemployment problem as a structural problem as Larry Fink of BlackRock does.
- Furthermore, it looks as if the lame-duck stage is hitting the Obama administration, which will further limit what the federal government might be able to do to help the economy.
I asked this question two days ago and didn't come up with a very definitive answer.
Things have changed, however, and if I want to do whatever most of the crowd of economists seems to be doing, the answer to this question, now, is a definite "YES."
Seems like 48 economists surveyed by The Wall Street Journal have dramatically lowered their forecast for real GDP growth in 2014.
"The July consensus view calls for inflation-adjusted gross domestic product to grow just 1.6 percent this year, as measured as the percentage change from this year's fourth quarter over the fourth quarter of 2013."
The comparable actual growth rate for 2013 was 2.6 percent.
A month ago, the consensus forecast was 2.2 percent and in the first five months of 2013 the expected rate of growth for 2014 was in the 2.7 percent to 2.8 percent range.
In the second quarter, the United States economy did not pick up as much as was expected from the dismal 2.9 percent decline that took place in the first quarter.
It is now expected that the second quarter picked up at an annual rate of 3.1 percent, but this is down from earlier expectations. For the remainder of the year, the growth rate is only supposed to be an annualized 3.0 percent.
These numbers are from quarter-to-quarter and work out to the 1.6 percent rate for the fourth quarter-to-fourth quarter prediction.
The main disappointments come in the consumer area, general consumer spending and housing starts are putting in rather dismal years. This is because of the uncertainty in the economy and the conditions in the labor market.
The Wall Street Journal stresses that the labor markets will stay strong through this period with the consensus view being that the unemployment rate will end this year at 5.9 percent and will drop to 5.5 percent in 2015.
This latter encouraging view… I believe is wrong!
I tend to be where Larry Fink, CEO of BlackRock, the world's largest asset manager. He is quoted in the Financial Times as suggesting that the Federal Reserve cease its monetary stimulus earlier than the October date that was announced late last week.
The reason for this suggestion? He believes that the quantitative easing on the part of the Federal Reserve is doing little or nothing to help the economy grow and put people back to work. His analysis is that the problems being experienced are structural… especially structural unemployment.
Fink is quoted as saying "Factories that used to employ thousands now employ 200." This is a structural problem and, Fink continues, "We have a central bank that has not admitted we have structural unemployment."
As I have suggested many times over, more important figures relating to the job market are the labor participation rate, which is now around a forty year low of 62.8 percent and an underemployment problem where more and more people that are hired are just working part time when they would like to work full time.
And these problems are not getting better. As Fink suggests, "For the US to grow above trend, it has to be about government policy, not central bank policy." In this he is stressing the education and training of the many, many individuals that have dropped out of the labor market or that can obtain only part-time work… and the young people that are growing up to enter the labor force.
At the end of this year the economic recovery from the Great Recession will be five and one-half years old. In 2010, the fourth quarter-to-fourth quarter growth rate was 2.8 percent. The next two years the same measure of economic growth came in at 2.0 percent.
And, as was reported above, the figure for 2013 was 2.6 percent.
By far, this is the slowest economic recovery since the end of World War II and some of us believe that it is really not going to get any better. The problem, as mentioned above, is a longer-term problem and cannot be solved by short-term policies aiming to put people back into the jobs that they once held. As Fink indicated, many of these jobs no longer exist.
But our political framework is such that our elected officials only think of the next election when they are attempting to determine economic policy. In this respect, there are no greedier bastards in the country than the greedy bastards we call our national government.
They really only care about getting re-elected.
And the American people are faced with another dilemma -- we have a lame-duck president in the White House that will be around for two and a half more years. The president is quick to argue that he faces an unmovable House of Representatives in Congress controlled by the opposite party. But the Democratic Party is already moving away from him as they start to fight over who is going to control the Democratic National Committee. The front-runner right now… and the one that almost everyone is betting on… is William Jefferson Clinton.
Bottom line: don't really expect anything from the federal government over the next two and a half years.
All of this does not bode well for economic growth through 2016.
And there is the very tenuous condition of national relationships within the world today. Is Iran really going to stop making a nuclear weapon? What is really going to happen in the case of Israel and the Palestinians? And Russia and the Ukraine? And, Syria… and Iraq… and on and on. Something could really blow up almost anytime, anywhere.
Let me ask my question again: should I change my economic forecast for 2014?
I believe that economic growth for 2014, and 2015, and 2016 will be positive. I don't see right now any recession on the near-term horizon. Wow, if this is true, Obama will go out of office having presided over a seven and a half year economic recovery! That puts him right up there with the presidency of Bill Clinton.
However, I don't think anyone would compare the economic record of the 2010s with that of the 1990s. I know I wouldn't.
Will economic growth ever hit a 3.0 percent or more, year-over-year, rate of growth during the next two and a half years? Right now, the odds don't look good, especially if Washington, D. C. basically shuts down waiting for the next president to take over the office.
So, let's just say that economic growth seems to be stuck in the 1.0 percent to 3.0 percent range for the next couple of years. There, I guess I just changed my forecast.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.