A forecast of modest growth with no housing bubble
Everyone would like economic growth to be more robust, but we’ll take what we can get. U.S. growth should continue at a 2 percent annual pace for the rest of 2013, then rise to 2.7 percent in 2014, according to the Chapman University Economic Forecast, presented Wednesday before about 1,000 local business and community leaders at Renee and Henry Segerstrom Concert Hall.
And, unless the Federal Reserve Board drastically increases interest rates, “We have room for this recovery to continue to 2016,” Jim Doti said; the economist is Chapman’s president. “The fundamentals are that we are not setting ourselves up for a recession.”
The major engine of the national recovery is housing, with prices seen rising 10.5 percent this year and 7.2 percent in 2014. Doti said this growth is different from the “boom” growth of the mid-2000s, which ended in the “bust” of the Great Recession of 2007-09.
This time, debt payments as a percentage of income are at “historically low levels” of 10.5 percent. By contrast, at the height of the boom in 2007, debt was 14 percent of income, indicating high mortgage payments.
Not all today is rosy, Doti warned. The eurozone continues in crisis, and China’s economy is slowing. The rising value of the dollar has meant fewer exports. Interest rates have risen half a percentage point in just the past month, to an average of 4 percent. “What if that trajectory continues?” Doti asked. “What if interest rates are 6 percent? The housing affordability drops.” With housing as the main pillar of the recovery, then we would have problems.
Another blemish is that median household income has remained static during the recovery, at “around $51,000” a year, from 2010-13, meaning the middle class is not benefitting from the recovery. However, the forecast expects U.S. unemployment to gradually drop from the 7.6 percent in May to 6.7 percent over two years. Doti said that’s still above the 6.5 percent threshold the Fed has set to begin to aggressively increase interest rates.
In all, the forecasts are encouraging, even though this recovery remains the slowest since World War II. More robust growth probably will have to await Reagan-style cuts in taxes and bureaucracy.
From the Orange County Register
Rules for posting comments
Comments posted below are from readers. In no way do they represent the view of Oahu Publishing Inc. or this newspaper. This is a public forum.
Comments may be monitored for inappropriate content but the newspaper is under no obligation to do so. Comment posters are solely responsible under the Communications Decency Act for comments posted on this Web site. Oahu Publishing Inc. is not liable for messages from third parties.
IP and email addresses of persons who post are not treated as confidential records and will be disclosed in response to valid legal process.
Do not post:
- Potentially libelous statements or damaging innuendo.
- Obscene, explicit, or racist language.
- Copyrighted materials of any sort without the express permission of the copyright holder.
- Personal attacks, insults or threats.
- The use of another person's real name to disguise your identity.
- Comments unrelated to the story.
If you believe that a commenter has not followed these guidelines, please click the FLAG icon below the comment.