US economy set for better times whether Obama or Romney wins
No matter who wins the election tomorrow, the economy is on course to enjoy faster growth in the next four years as the headwinds that have held it back turn into tailwinds. Consumers are spending more and saving less after reducing household debt to the lowest since 2003. Home prices are rebounding after falling more than 30 percent from their 2006 highs. And banks are increasing lending after boosting equity capital by more than $300 billion since 2009.
“The die is cast for a much stronger recovery,” said Mark Zandi, chief economist in West Chester, Pennsylvania, for Moody’s Analytics Inc. He sees growth this year and next at about 2 percent before doubling to around 4 percent in both 2014 and 2015 as consumption, construction and hiring all pick up.
The big proviso, according to Zandi and Yale University professor Ray Fair, is how the president-elect tackles the task of shrinking the $1.1 trillion federal-budget deficit. The Congressional Budget Office has warned that the U.S. will suffer a recession if more than $600 billion in scheduled government- spending reductions and tax increases — the socalled fiscal cliff — take effect next year.
“There are a lot of things that are positive going forward for the economy,” Fair said. “Hopefully, we can get a handle on the deficit” without dragging down growth too much.
While concern about the threatened fiscal squeeze may hit gross domestic product this quarter and next, the expansion should pick up strength by the middle of 2013, said Eric Green, a Philadelphia-based fund manager at Penn Capital Management Co. GDP “will surprise to the upside,” said Green, whose firm manages $7.2 billion. “We could grow at a 3 to 4 percent rate over the next couple of years.”
Hiring in the U.S. increased more than forecast in October as employers looked past slowing global growth and political gridlock at home. In the last jobs report before tomorrow’s election, the Labor Department said a net 171,000 workers were added to payrolls, beating the 125,000 median forecast of economists surveyed by Bloomberg.
Shares of manufacturers, materials producers and energy and technology companies should rise as the expansion gains speed, Green said. More “defensive” stocks that aren’t as affected by rising demand, such as real-estate investment trusts, health- care providers and consumer staples, won’t perform as well. The Standard & Poor’s 500 Index is up about 12 percent this year.
The U.S. also should benefit next year from a rebound in the rest of the world, according to Green, especially as China, the second-largest economy, “seems to be bottoming out.”
Chinese manufacturing expanded in October for the first time in three months, according to a purchasing managers’ index compiled by the government. A similar gauge from HSBC Holdings Plc and Markit Economics posted the biggest gain since 2010.
While manufacturing in the euro area continues to contract, the region “can’t be in a recession forever,” said Allen Sinai, chief executive officer of Decision Economics Inc. in New York. Economists surveyed by Bloomberg see the 17-nation group expanding 0.2 percent next year and 1.2 percent in 2014.