Facing financial insecurity in Europe, sluggishness in China and an election in November, state economists on Tuesday took a cautious, stay-the-course approach to their view of the national economic picture while reiterating that the recent slowdown likely won’t result in another recession, reports Michael Peltier of the News Service of Florida.
Meeting to update their national economic forecast last tweaked in December, economists from the Legislature and the governor’s office said they will likely be in a much better position to read the tea leaves the next time they meet, as events in the United States and abroad become clearer over the next several months.
Despite recent dips in consumer confidence and sluggish job growth, economists estimate the national economy will grow by 2 percent during the fiscal year that began July 1, a 0.1 percentage point uptick from the forecast late last year.
But the panel expects the recovery to take longer than previously expected, prompting members to reduce the forecast for the 2013-14 fiscal year by a full percentage point, lowering GDP growth expectations to 2.1 percent.
The overall growth rate comes despite lower expectations for job growth, as national employment figures remain weak. December estimates, which called for a 1.4 percent increase in non-farm employment in the current fiscal year, have been pared back by 0.1 percent. Job creation also is expected to move at slower pace than previously predicted for the next several years.
“Despite the slowdown in the economy, I believe the economy has hit a soft spot and is not heading back toward recession,” said Clyde Diao, an economist in the governor’s office.
Some recent indicators are cause for such optimism. A dramatic decline in gasoline prices in recent months translates into a 0.5 percentage point increase in consumer disposable income. Auto sales are up and are expected to remain stronger than previously expected over the next few years.
Housing appears to be another rebounding sector as pent-up demand continues to mount while interest rates remain low and relatively stable. Housing starts for the current fiscal year are expected to climb about 23 percent. Fueling the increase is demand from renters and continued low interest rates.
Despite such encouraging domestic news, it’s become abundantly clear the U.S. economy is closely linked to the fates of other nations. Instability in the euro zone over the past several months has hurt U.S. exports. Likewise, an economic slowdown in China has also been felt halfway around the world.
“Unlike the ’60s and ’70s when most of the growth was from within, any slowdown in the world economy affects us from afar,” Diao said.
Making the forecasters more cautious are a handful of factors that could affect the national economy over the next 12 months and beyond, said Amy Baker, coordinator for the Legislature’s Office of Economic and Demographic Research.
Federal lawmakers face an upcoming deadline to agree on cost saving measures or face automatic budget cuts in defense and social services spending. The presidential election will also strongly influence economic activity, especially in the area of health care programs.