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Economist predicts continued improvement in 2014
The U.S. economy is on the mend, and both consumers and business people can expect continued improvement.
That was the message delivered to the Grand Rapids Area Chamber on Monday by Wells Fargo Senior Economist Dr. Eugenio Aleman in his presentation “Better Times Ahead.”.
Although much media attention has focused on the economic impact of the Affordable Care Act implementation, Aleman predicted any economic impact will be minimal.
“I think the Republicans will never be able to get rid of it, but it (the healthcare reform act) is so bad it can only get better,” he said. “I think (the price) adjustments around healthcare reform have already taken place.”
While less than enthusiastic about the healthcare reform act, the Wells Fargo economist generally gave good marks to the Obama administration’s handling of economic matters and even made the case for more government spending. He noted that GDP growth in the third quarter of 2013 reached 3.6 percent (revised numbers in late December indicated growth at 4.1 percent), and fourth quarter numbers were expected to be in the 2 to 3 percent range. Overall, Aleman anticipates 2013 growth will average 1.8 percent.
Forecasters expect 2.4 percent growth in 2014 – still below the 100-year average of 3.5 percent. At least some of that shortfall, said Aleman, is due to a lack of growth in government jobs and spending – mostly at the state and local level - during the economic recovery during the last several years.
“This is the reason we’re growing so slowly,” he said.
While the outlook is generally better than it has been, Aleman did note some economic factors that could be of concern, including the shrinking labor participation pool. During the Great Recession, the U.S. shed about 9 million jobs and thus far has recovered about 7.5 million. The country has been adding about 180,000 jobs per month (below the normal recovery threshold of 200,000).
Normally, the addition of about 300,000 jobs per month would be needed to significantly impact unemployment rates, he said. However, the retirement of baby boomers, at a rate of 10,000 per day, combined with an increasing number of people who have given up looking for work plus people leaving the labor pool to return to school, have led to a drop in jobless numbers. U.S. Bureau of Labor figures show national unemployment dropping from a high of 10 percent in 2009 to a current rate of about 7 percent.
The sharp drop in the number of experienced workers in the labor pool, who are largely being replaced by young workers with little or no experience, is “the worst thing happening in the labor market,” Aleman said.
Other economic indicators, such as low inflation, the Federal Reserve’s balance sheet and a rise in housing prices could pose challenges but are unlikely to be major economic threats, he added.
Aleman argued that a correction in the housing market, which has experienced pent-up demand, likely won’t cause a new crisis. If that market is in a bubble, he said, the impact will be less severe because today’s housing market isn’t built on a foundation of sub-prime lending.
Aleman also found reason for optimism in manufacturing, a sector where employment has grown 5 percent since 2010.
Consumer spending, which accounts for about 80 percent of U.S. economic activity, could be due for an uptick. Household debt service currently is at a low mark of less than 10 percent. Every time household debt has fallen to such levels, it has then begun to increase.
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