Economists See Growth Spurt Delayed, Not Derailed
Written by Kathleen Madigan
Harsh winter weather delayed—but likely didn't derail—the breakout growth many economists expected for the U.S. going into the year.
According to The Wall Street Journal's monthly survey of economists, the second quarter's real gross domestic product will see an extra half-percentage point in growth amid a burst of consumer and business spending that was delayed or postponed during the bitterly cold and snowy winter across much of the U.S.
If the forecasts bear out, that would be a significant bounce for an economy that has averaged an annual growth rate of less than 2.5% in the nearly five-year recovery—and would help ease concern over the winter's toll on growth. Going into 2014, economists had predicted the U.S. was poised to break out of its sluggish recovery.
Because of the weather drag, the consensus view of the 48 economists surveyed—not all of whom answered every question—is that real GDP growth slowed to only a 1.5% annual rate in the first quarter and is now revving up to a 3.0% pace this quarter. That's a bit less robust than the pattern projected in the March survey, when first-quarter growth of 1.9% was expected to be followed by a 2.9% pace.
"We will get a consumer-led payback in durable-goods spending," said Joseph LaVorgna of Deutsche Bank. He thinks the catch-up in demand, together with faster construction spending, could account for 1 percentage point in a 4.2% surge in second-quarter GDP growth.
In general, the economists think 3% growth will prevail in 2014's second half as well.
"The U.S. virtuous economic cycle has arrived," said James Smith of Parsec Financial. Mr. Smith sees more jobs and income supporting more demand that will lead to more jobs and income.
Mr. LaVorgna also thinks government spending, especially at the state and local levels, will help growth this year. Hampered during the recession and sluggish recovery, city and state finances are in better shape—particularly in relation to federal finances.
Economists continue to think that if they are misreading the tea leaves, it is because they are too cautious about the outlook. Three-quarters of the respondents say the risk to their respective forecasts for 2014 is to the upside rather than to the downside.
One reason for optimism is that the economy is enjoying "lagged positive responses" to the Federal Reserve's bond-buying program, said Allen Sinai of Decision Economics.
With the economy heating up, the forecasters think the Fed will stay on course and end its bond purchases some time in the fourth quarter. The program was launched in late 2012 to hold down long-term interest rates and spur growth.
What sectors might surprise? About one-quarter of respondents think consumer spending could be stronger than expected, while another quarter point to capital investment by businesses.
Although new orders for capital goods have been sluggish in recent months, Maury Harris of UBS says surveys done by the Conference Board, National Federation of Independent Business and the Philadelphia Federal Reserve show companies big and small are planning more capital projects.
"If you look at [capital spending] surveys, you get generally upbeat numbers," Mr. Harris said. UBS projects real business spending on equipment will increase by 7.5% in 2014 from a weak 3.1% in 2013.
Forecasters lifted their expectations for job growth, if only a bit. They now see nonfarm payrolls increasing by 201,000 a month, up from 196,000 projected a month ago. But they still see the jobless rate ending the year at 6.2%, the same year-end rate forecasted in February and March.
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Source: The Wall Street Journal