Despite the recent $150 billion tax increase, uncertainties imposed by sequestration and halting growth in consuming spending, economists expect GDP growth to rebound and moderate jobs creation to continue.
Friday, forecasters expect the Labor Department to report the economy added 171,000 jobs in February, and for unemployment to remain unacceptably high for several more years.
In the fourth quarter, GDP was up at a scant 0.1 percent annual pace, slowed by a drop in inventory build and smaller Pentagon purchases. However, those factors are not likely to repeat in the first quarter data, and the effects of sequestration will not likely be felt until spring.
Consumers have been constrained by higher gas prices and the January tax increases but overall, economists expect GDP growth to be in the range of 2 percent or a bit higher in the first quarter.
Still, the pace of recovery remains disappointing, in part, because Dodd-Frank regulations make mortgages, refinancing, and home improvement loans much more difficult to obtain. Those hold down existing homes sales, renovations and demand for building materials, major appliances and other durable goods.
Other factors contributing to the slow pace of recovery include the huge trade deficits with China and other Asian exporters of manufactures and on oil. Absent U.S. policies to confront Asian governments about their purposefully undervalued currencies, and to develop more oil in the eastern Gulf, off the Atlantic and Pacific Coasts, and in Alaska, the trade deficit and its drain on growth will worsen.
The recent surge in natural gas production, and accompanying lower prices, has the potential to substantially improve the international competitiveness of industries like petrochemicals, fertilizers, plastics, and primary metals—as well as consuming industries like industrial machinery and building materials. However, the Department of Energy is considering proposals to boost exports of liquefied gas—a costly and environmentally risky process. That would reduce the trade deficit and boost growth less, and create many fewer jobs, than keeping the gas in the United States for use by energy-intensive industries.
Overall businesses remain somewhat pessimistic and tentative about adding capacity and hiring workers in the United States. Instead, they look to Asia where government policies are more accommodating and prospects for growth remain stronger.
The economy must add more than 360 thousand jobs each month for three years to lower unemployment to 6 percent and that is not likely with current policies. That would require growth in the range of 4 to 5 percent. Without better trade, energy and regulatory policies, and lower health care costs and taxes on small businesses, that is simply not going to happen.
Most analysts see the unemployment rate for January fall a notch to 7.8 percent, but the wildcard remains the number of adults actually working or seeking jobs—the measure of the labor force used to calculate the unemployment rate.
Labor force participation is lower today than when President Obama took office and the recovery began, and factoring in discouraged adults and others working part-time that would prefer full time work, the unemployment rate is 14.4 percent.
Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist.