ATLANTA — Ignore the fiscal cliff and think about it more as a “fiscal bungee jump,” advises Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center. This year will end with two lackluster quarters followed by a weak economy next year thanks to a lack of business investment, which will eventually rebound in 2014, predicts Dhawan.
“This quarter and next quarter are ruined,” remarked Dhawan at the Economic Forecasting Conference last Wednesday, Nov. 14, at GSU’s student center. “Then things will pick up by year-end 2013.”
Dhawan blames the impending fiscal cliff for creating uncertainty among U.S. households, and influences from Europe and China as the main reasons for next year’s desolate outlook. (The fiscal cliff is the end of certain tax breaks for businesses and payroll tax cuts, and the beginning of taxes related to President Obama’s health care law.) While consumer sentiment appears upbeat heading into the holiday season, corporate sector investment is at a virtual standstill, said Dhawan.
“Consumer expectations will be dashed in the coming months, the corporate mood is also bleak as revenue growth has stalled affecting job growth, and the fallout from a recessionary Europe and a stalled China will also be felt in 2013,” said Dhawan during his presentation.
The fiscal cliff will cut into investment spending by firms, wreck the consumer mood and affect retail sales in the first quarter of 2013. Next year, Dhawan predicts real GDP will grow at an annualized rate of 1.5 percent and that the U.S. economy will create 1.35 million jobs. Meanwhile, he projects auto sales of 14.2 million, rising to 15 million in 2014 (see table).
“Retail sales bottomed out in the summer, but went up because you got optimistic,” he said. “You’re saving more, but when you see deals you come out to play.”
October retail sales decreased 0.3 percent on a seasonally adjusted basis from September, but increased 3.9 percent on an unadjusted basis year-over-year.
Consumer confidence and small business optimism may be considered small on the grand scheme of things, but they are leading indicators, according to Dhawan. Next year will showcase one more round of uncertainty before recovering in 2014.
In 2014, CEO optimism will improve and drive further investment in technology, says the veteran economist. As a result, this investment will significantly increase employment growth. Dhawan predicts approximately 1.9 million jobs will be created in 2014. Almost every private sector is expected to add jobs in 2014.
He also forecasts that the percentage of GDP made up by household debt will drop. In 2012, the household debt was 82 percent of GDP, while Dhawan predicts the percentage to decrease to 78 percent in 2013. Home prices will continue to rise, consumers will feel wealthier and they’ll have more disposable income to spend. The bottom line is 2014 is already shaping up to be a good year, concludes Dhawan.
“My 2014 — I love it,” said Dhawan. “I just don’t want to talk about my 2013.”
— Brittany Biddy