Date of this Version
Business in Nebraska, September 2011, (66)701: 8 pages
SLOW GROWTH AND UNCERTAINTY
U.S. Macroeconomic Outlook
A lingering financial crisis, economic shocks, and economic policy have combined to derail the self-sustaining recovery in the United State economy. Growth has slowed to a crawl and the risk of another recession runs high. What has happened? To begin with, the Great Recession of 2008 and 2009 continues to impact the construction sector and state and local government employment. New housing construction remains depressed, causing construction employment to drift downward. With tax revenues below pre-recession levels, state and local government employment continues a steady decline. The market also continues to face unexpected shocks. The Japanese earthquake, in particular, helped to derail a rapidly growing manufacturing sector. Brinksmanship surrounding the U.S. debt ceiling and a potential U.S. federal government default also derailed confidence in the U.S. economy, providing another negative shock to businesses and households. Finally, long-run economic policy decisions continue to discourage growth. Europe may fall into a second recession because of the ongoing failure of European leaders to resolve the continent’s sovereign debt crisis. Failure by U.S. policy makers to identify and agree to a long-run strategy to reduce U.S. federal government debt also has been a major drag on business investment and consumer confidence. Finally, significant increases in regulation in the last two years on the health care, financial services, and industrial sectors have discouraged growth in the United States. As a result of all these factors, consumer spending and business investment are now growing at an anemic pace.
Such growth, of course, is essential to the continued expansion of the economy. As a result, there is a heightened risk that the economy will fall back into recession. At best, the U.S. economy is looking at a period of anemic economic growth at the end of 2011 and the beginning of 2012, with a return to moderate growth later in that year.
While the risk of recession is substantial, the latter scenario of continued anemic growth in the short-run and moderate growth in the long-run is the most likely scenario for the U.S. economy. What would this anemic growth scenario look like? The Council’s expectation is that real gross domestic product (GDP) growth will be just 1% nationwide this year, reflecting average growth of 1.5% in the last two quarters of 2011. Real GDP growth will hit 2% in 2012, with growth accelerating throughout the year. Real GDP growth of 3% is expected in 2013. Given job growth that has already occurred in 2011, U.S. job growth will reach 0.8% this year. Growth will reach 0.8% in 2012 and 1.2% in 2013. With baby-boomers beginning to retire and slow labor force growth, the unemployment rate should remain stable despite anemic job growth in late 2011 and 2012. Unemployment rates should decline later in 2012, falling to 8.5% by the end of the year. The consumer price index is expected to rise by 3.0% in 2011 and by 2.3% in 2012 before returning to the Federal Reserve Bank target rate of 2.0% in 2013.
Looking beyond this baseline scenario, a more pessimistic outcome is the most likely alternative. The Council puts the odds of another U.S. recession at one-in-three.
Construction and Mining
Transportation and Utilities
Nonfarm Personal Income
Net Taxable Retail Sales
Our Thanks …
The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were
- John Austin, Department of Economics, UNL;
- Chris Decker, Department of Economics, UNO;
- Tom Doering, Nebraska Department of Economic Development;
- Ernie Goss, Department of Economics, Creighton University;
- Bruce Johnson, Department of Agricultural Economics, UNL;
- Ken Lemke, Nebraska Public Power District;
- Phil Baker, Nebraska Department of Labor;
- Franz Schwarz, Nebraska Department of Revenue;
- Scott Strain, Greater Omaha Chamber of Commerce;
- Eric Thompson, Department of Economics and Bureau of Business Research, UNL;