Analysis/Comment Dr Peter Morici: Slower growth, stubborn unemployment, faces US in 2013
By Professor Peter Morici
Dec 19, 2012 - 8:08 AM
President Barack Obama, First Lady Michelle Obama, daughters Sasha and Malia, and Marian Robinson listen as Megan Hilty performs at the "Christmas in Washington" concert taping in Washington, DC, Dec. 09, 2012.
Dr Peter Morici on US growth and unemployment in 2013: Recent retail sales data indicate US economic growth is shifting down a gear
from the 2.7% pace set during the third quarter. The consensus of forecasts
indicates growth slowing to below 2% in the fourth and first quarters—my
submissions to those polls were 1.7 and 1.4%, respectively.
For all of 2013, the economy will be hard pressed to accomplish the 2% growth
registered this year, and unemployment only will continue falling if more adults
opt out of the labor market or settle for part time work.
This forecast depends on a fiscal cliff agreement that imposes only
moderately higher taxes and at least some veiled attempt to curb spending.
On spending cuts, this economist is from Missouri. President Obama and allies in
Congress simply won’t accept that entitlement spending is out of control. Such
cognitive dissonance colors long-term prospects, even as revealed by forecasts
coming from Democratic economists.
Should the President succeed in obtaining an immediate $100 to 150 billion in
new taxes, and Republicans obtain a similar-sized quick cut in spending, brace
for a recession. With so many folks already unemployed or underemployed, it
could be difficult to lift the economy off the mat again, even with trillion
It is important to recognize, stronger third quarter growth was on the back of
inventory build and surging exports, whereas consumer spending, the big
locomotive, slowed markedly. Inventory investments must moderate with the slower
pace of consumer spending, and exports have already slowed considerably, thanks
to policy dysfunctions and recession in Europe.
Consumers are hesitant to do more than replace wearing big ticket items and
indulge in moderate outlays on nondurables like clothing, as worries about the
fiscal cliff loom. More importantly, years of falling real wages constrain
consumer buying power—savings share of personal income is already very low.
Jobs lost to Chinese and other Asian competition in manufacturing continue to be
replaced by lower paying positions in service activities and in what new
manufacturing emerges, and the failure to replace many jobs altogether pins down
the%age of adults working and wages.
Further, many states have solved their budget woes by raising taxes and fees.
Falling real wages, high unemployment and higher taxes create more tight fisted
customers for Wal-Mart and Kia but fewer enthusiasts for Nordstrom and your
local Ford dealer.
Big caution in the auto-patch—GM is discounting to clear piled up inventories,
and the dollar value of retail auto sales is not matching the surge in vehicles
Overall, the economy remains vulnerable to another shock—be it the fiscal cliff,
big tax increases and spending cuts to avoid it, or some other disaster. The
focus on higher taxes in the fiscal cliff negotiations almost guarantees another
year of tepid growth or worse.
Professor, Robert H. Smith School of Business, University of Maryland,