U . S . F o r eca s t
As the flow of credit begins to resolve itself, growth will return in this type of investment in 2013. By the time we get into 2014, growth in this component of investment will be a robust 11.3%. Investment in transportation equipment grew robustly in 2010 (57.4%) and will continue to do so throughout our forecast horizon. This type of investment will have an average growth rate of 17.9% during the four years from 2011 through 2014. Continued pent-up demand and persistently low interest rates will bolster light vehicle sales which will grow from 2010 levels of 11.5 million to a level slightly more than 16.5 million in 2014. Residential fixed investment growth has been negative for six straight years including 2011. The somewhat inconsistent recovery, persistently high unemployment, and mortgage underwriting difficulties have prolonged the woes of a floundering housing market. In 2012, things finally start to turn around as residential fixed investment growth finally turns positive in this year and grows by 4.1% from a depressed level. It will average 21.6% growth through 2013-2014 with much faster growth in 2014 of nearly 26%. Housing starts bottomed out in 2009 at 0.554 million and have bounced along that bottom since that time. Inventories of new homes have fallen significantly. We expect starts to accelerate significantly in 2012 before hitting nearly 1.6 million in 2014. G o v e r n m en t Spendin g
“Sooner or later, we shall all have to pay for what we do.” – Oscar Wilde Despite running up deficits from 2009-2012 that we are projecting will exceed $5 trillion in total, the economy remains sluggish. Bailout fatigue and a failed American Reinvestment and Recovery Act (the stimulus plan) have made bold stimulus action today a near impossible political prospect. This is too bad because we are bumping up against the limits of what monetary policy can deliver as far as a stimulus is concerned. A coordinated fiscal and monetary policy would have a larger impact on the economy than either could do on its own. Nevertheless, the opportunity to do
this has passed, and we are likely to see only modest fiscal policy passed in the near term. We will get a cup of coffee when what we need is an injection of adrenaline directly into the heart of the economy (think Pulp Fiction). The Obama administration missed a chance to completely transform fiscal policy, to set the dials to the correct levels for the short, medium and long run. Nevertheless, the President’s decision to shelve the Simpson-Bowles report and not even consider its admittedly painful, yet ultimately necessary recommendations such as entitlement reform and simplification of the burdensomely complex U.S. tax code, left fiscal policy to flap in the wind. Any discussion of fixing our deficit and debt problem that excludes entitlements is an exercise in futility and only delays the difficult changes that must be undertaken. The Greek debt crisis is a cautionary tale, a visit from the fiscal ghost of austerity yet to come. If we do not heed this spirit’s warning, our future could become as dire as Greece’s is today. The national debt is over $14.8 trillion and rising. Trillion-dollar federal budget deficits are lingering like in-laws overstaying a holiday visit. Despite the debtceiling theatrics, we are forecasting deficits to stay above the trillion-dollar level through 2012. In 2013, we are forecasting the federal budget deficit to be $808 billion and $737 billion in 2014. Net Exports Overall trade growth will continue through the end of our 2014 forecast period. The prospect of long awaited free trade agreements with South Korea, Panama and Columbia will help drive this growth. Average real export growth is expected to be 7.1% through 2011-2014. Real imports will expand over the same period with an average growth of 3.7 percent. The global economy grows ever more intertwined in the trade of goods and services, as well as in financial flows. The ongoing European debt crisis and its impact on U.S. financial markets is a near daily reminder of our interconnectedness. In 2012 the U.S. dollar will appreciate vis-àvis major trading partners helped in part by the uncertainty in the E.U. The weakening of the U.S. dollar was interrupted by the Greek sovereign debt crisis that continues to unfold, but the dollar will begin to depreciate again after 2012 with low interest Institute for Economic Competitiveness
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