Dim­mer out­look for US econ­omy, wages & hir­ing


For much of the econ­omy’s fit­ful and slug­gish six-year re­cov­ery from the Great Re­ces­sion, an­a­lysts have fore­seen a sun­nier fu­ture: Growth would pick up in six months, or in a year. That was then. The latest As­so­ci­ated Press sur­vey of lead­ing econ­o­mists shows that most now fore­see a weaker ex­pan­sion than they had ear­lier. A ma­jor­ity of the nearly three dozen who re­sponded to the sur­vey pre­dict tepid eco­nomic growth, weak pay gains and mod­est hir­ing for the next two years at least.

Nearly 70 per­cent said

they thought the econ­omy’s growth would re­main be­low its long-run av­er­age of 3 per­cent an­nu­ally through 2017. The econ­omy hasn’t at­tained that pace since 2005.

And if they’re right, don’t ex­pect much of a pay raise: Fiftyeight per­cent of the econ­o­mists think wage in­creases for the next two years will re­main stuck be­low a long-term an­nual av­er­age of 3.5 per­cent.

What’s more, if growth doesn’t pick up from its mod­est postre­ces­sion pace of 2.2 per­cent a year, nearly six in 10 ex­pect hir­ing to fall to an av­er­age of 175,000 jobs a month or be­low, down from its pace of 243,000 jobs a month for the past year.

At the start of the year, many econ­o­mists thought fall­ing gas prices and strong hir­ing would fi­nally pro­duce 3 per­cent eco­nomic growth for 2015 as a whole.

“We no longer have rea­son for op­ti­mism that the econ­omy is go­ing to ac­cel­er­ate,” said Mike Englund, chief economist at Ac­tion Eco­nom­ics. “The real ques­tion is, when is the next down­turn com­ing?”

Other find­ings from the sur­vey, con­ducted Aug. 13 to 20, in­clude:

— Home sales will im­prove fur­ther de­spite a still-tepid econ­omy. More than 80 per­cent of econ­o­mists say re­cent job gains, which have put about 2.9 mil­lion Amer­i­cans to work in the past year, will lead more Amer­i­cans to buy homes. Sales reached an an­nual rate of 5.6 mil­lion in July, the best in eight years. And nine in 10 of the econ­o­mists ex­pect mil­len­ni­als — peo­ple be­tween 18 and 34 years old — to step up their home buy­ing and boost growth in com­ing years.

— All but two of the econ­o­mists think the Fed­eral Re­serve will raise the short-term rate it con­trols by year’s end, with 80 per­cent peg­ging the Fed’s midSeptem­ber meet­ing as the mostly likely time.

— As­sum­ing

the Fed

raises rates this year, econ­o­mists forecast that the av­er­age 30- year fixed mort­gage rate will rise from 3.9 per­cent to 4.4 per­cent by mid-2016 and 4.8 per­cent by the end of 2016. Those lev­els are still low by his­tor­i­cal stan­dards.

— Main­land China’s eco­nomic trou­bles will worsen, in turn slow­ing the global econ­omy. In just the past month, China’s ex­ports have plum­meted along with fac­tory out­put, and its stock mar­ket has sunk. The coun­try has de­val­ued its cur­rency in part to try to boost ex­ports, but growth is ex­pected to slip to 7 per­cent this year, the slow­est pace since 1990. Half the econ­o­mists said they think China’s growth will weaken fur­ther in the next year to be­low a 6 per­cent an­nual pace and slow the global econ­omy.

China’s woes have trig­gered sharp sell­offs in global fi­nan­cial mar­kets.

The econ­o­mists cited sev­eral rea­sons for their dim­mer out­look for the United States. Many pointed to a slow­down in the pro­por­tion of Amer­i­cans with jobs. Baby boomers are re­tir­ing, young peo­ple are stay­ing in school longer and some of the un­em­ployed have given up on their job hunts.

In­creases in worker ef­fi­ciency have also fal­tered since the re­ces­sion, fur­ther lim­it­ing the econo- my’s out­put.

“The slow­down in la­bor force growth is the main rea­son (eco­nomic) growth in the U.S. will be slower than it was in the sec­ond half of the pre­vi­ous cen­tury,” said Luke Tilley, chief economist at Wilm­ing­ton Trust.

Out­side of pop­u­la­tion growth and pro­duc­tiv­ity, “a huge surge in ex­ports” could spur a faster ex­pan­sion, said Robert John­son, an economist at Morn­ingstar. Yet econ­o­mists noted that the Amer­i­can dol­lar has surged about 20 per­cent in value in the past year com­pared with a bas­ket of other cur­ren­cies. That’s made U.S. ex­ports more ex­pen­sive over­seas.

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