U.S. Economy Exhibiting Resilience

It has now been four years since the U.S. economy emerged from the Great Recession, and the best way to describe the current economic situation is that we are holding steady. For the past four years the rate of growth in the U.S. GDP has been right around 2% per year. This is the longest period of sub-3% annual growth since the Great Depression started in 1929. But I do not expect a recession anytime soon. In fact, I expect growth to accelerate.

Our latest forecast for GDP in 2013 calls for a growth rate just a tad higher than 2%. This will result in about 2 million new jobs being created. In other words, things this year will be the same as the year before and the year before that. In 2014, GDP growth will elevate to over 3%.

Despite the recent sluggishness, the resilience of the U.S. economy over the past few years is reason for optimism. The growth rate has been sub-par, but there have been many restraints and hurdles to overcome. A weaker economy would likely already be in a recession. The predominant obstacles this year are the increase in payroll taxes, the decrease in government spending, and weak export demand from our major trading partners in Europe. Fortunately, the negative effects of all three of these issues will moderate as we go forward. The second and third quarters of this year will be the weakest in terms of overall economic growth. The growth rate will gradually increase in the fourth quarter and beyond.

But though we expect the economy to gain momentum in 2014, it does not mean there will be no obstacles or headwinds to overcome next year. Healthcare reform is looming out on the horizon. This will result in a large period of adjustment in the labor market. The labor market is already struggling with the problem of the skills gap, and this problem is not going to be resolved any time soon. These issues will ultimately put a ceiling on just how fast the economy will be able to grow in the long run. There is also the issue of how the Federal Reserve Board is going to unwind its unprecedented and massive program known as Quantitative Easing, but I will save that discussion for a later time.

All of these issues notwithstanding, our outlook calls for steady improvement in the U.S. economy and the U.S. manufacturing sector through the middle of this decade. The first test will be this summer when the full effects of the sequester start kicking in. This will also be about the time that Congress has to raise the debt ceiling again. Other threats include: the possibility that the economy in the European Union could collapse; and tensions with Iran could escalate as a result of their nuclear program. But assuming we can get past these tests, the U.S. economy is poised for a period of more rapid recovery through the middle of this decade.