For the third straight year, economists are only a bit more optimistic about prospects for growth and hiring than they were 12 months earlier.
So don’t expect 2013 to be the year to break out the bubbly.
Weighing on the new year’s fiscal forecast are ongoing debt problems in Europe; improving but unsteady growth in developing nations; and tremendous political uncertainty over taxes, debt and deficits in the United States. These all add up to expectations for another ho-hum year.
There is a twist that makes 2013 different than the two prior years, however. During 2011 and 2012, optimism was high that things were turning around, only to give way to a sobering reality later in the year.
“I think that when we look at 2013, maybe the overall growth rate is not going to be a whole lot different, but I am more optimistic that we will exit 2013 on a stronger note,” said Nigel Gault, chief U.S. economist for forecaster IHS Global Insight. “I think we have an underlying acceleration just starting up.”
That view of a slow start and strong finish is similar to a Dec. 17 forecast by members of the National Association for Business Economics, the group for economists who work for corporations and trade associations.
“The panelists expect modest growth in the economy in 2013 as a whole, which accelerates steadily as the year progresses,” Nayantara Hensel, who heads the outlook survey for the NABE, said in the report. “The panelists forecast little improvement in consumption growth, significantly reduced growth in investments in nonresidential structures, equipment, and software, and reduced growth in corporate profits and industrial production.”
The group also sees consumers still under duress and businesses reluctant to hire or invest. It’s not to say things will get much worse, but it’s not likely to get a whole lot better, either.
The Federal Reserve, in its Dec. 12 New Year forecast, expected growth in a range between 2.3 percent and 3 percent. That’s not spectacular, given the time that’s passed since June 2009 when the Great Recession ended. The Fed expected 2012 to close with annual growth no better than 1.8 percent.
Dragging against U.S. growth are concerns over Washington’s bitterly partisan fight over expiring tax cuts, deep across-the-board federal spending cuts, and how and when the debt ceiling gets raised so the federal government can keep borrowing to pay the bills it already owes.
Companies have postponed hiring and sat on their cash rather than invest it. And there’s the likelihood that lawmakers might try to undertake a sweeping revamp of the tax code in 2013, creating additional short-term uncertainty. As a result, spending and investment has been sidelined.
And it’s why economists at Bank of America Merrill Lynch, more downbeat than most, see the economy growing at a slower pace next year. They project annual growth of 2.1 percent in 2012, slipping to 1.5 percent in 2013 before bouncing back in 2014.
“Expect . . . feeble recovery in the U.S. once the fiscal cliff is resolved,” Ethan Harris, the bank’s co-head of global economic research, said in a conference call on 2013 projections. “Business confidence and spending should come back. We are also optimistic about housing. We’re now setting ourselves up for a real recovery in the housing market. There’s a real story of recovery if we just get housing out of the picture going forward.”
Housing is not out of the woods. But new and existing homes have seen price gains in several regions of the nation in recent months, creating a sense of optimism that’s been missing since the housing bubble burst in 2007.
And good news could soon beget better news, suggested Gault of IHS. Once housing accelerates, “we’ll see above-trend growth” for the U.S. economy, he said.
Slow growth doesn’t mean a down year for stocks. Bank of America Merrill Lynch’s chief investment strategist, Michael Hartnett, predicted that stocks will continue to outperform bonds and other investment assets in 2013
“That’s very much the environment we’ve been in for the past three or four years,” he said, noting stocks in general should return 9 percent to 16 percent on investment.
Through Dec. 27, the Dow was up 7.2 percent and the S&P 500 stock index was up 12.8 percent for 2012. Helping boost stock prices at home and abroad was headway made in 2012 on Europe’s debt debacle and a so-called “soft landing” for China’s economy. China’s growth slowed sharply in 2012, but not so sharp that it caused large-scale unrest.
Fears that China’s inflated stock market might tumble also proved unfounded, with the Shanghai exchange essentially flat on the year. A widely followed price index for European stocks was up by 11.9 percent through mid-December.
“Global equity markets seem to agree with my assessment that, having survived the third year of living dangerously, we can do it again for a fourth year,” Ed Yardeni, a veteran Wall Street researcher, wrote in a Dec. 17 investment note on 2013 prospects. “Europe and China seem to pose less danger for investors in the coming year. The U.S. economy is actually in remarkably good shape, as long as the fiscal cliff is averted, as I continue to expect.”
The big dangers in 2013, he said, are mostly geopolitical in nature. They include rising Middle East tensions and the possibility of conflict in the South China Sea, where several nations dispute territorial control over islands.
What happens abroad increasingly matters for U.S. corporations, many of whom operate in, or export to, China, Asia, Latin America and Europe. The influential Business Roundtable, the lobby for big corporations, still sees a complicated outlook for the broader global economy.
“It’s mixed,” said roundtable chairman James McNerney Jr., CEO of aircraft maker Boeing Co. “I think Europe promises to be slow growth or flat. There’s some hope it’s better as they begin to put some of their fiscal issues to bed.”