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