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Source: Georgia State University Economic Forecasting Center
ATLANTA — Poor income growth, a cautious consumer and ongoing political uncertainty continue to hinder corporate investment, which is fostering a challenging economic recovery. While moderate job gains and strong auto sales are capturing headlines and bolstering optimism, the public should not misinterpret these trends, says Dr. Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University (GSU).
Auto sales, for example, are substantially above an annual rate of 15 million, the point at which Dhawan had previously predicted a strong economic recovery would take hold.
“Car manufacturers needed to clear out an inventory buildup, and consumers responded to the resultant price drops by buying,” said the economist during his presentation at GSU's student center on Aug. 28. “Thus, the growth in auto sales is not fully indicative of a proper recovery that is gaining steam, but of special circumstances.”
The other key components of the recovery — home prices and housing starts — also carry mixed signals. New construction typically cascades from banks to builders to suppliers, and ultimately to buyers who purchase new items for their new homes, explained Dhawan. The last leg is missing, according to the chief economist, who described consumers as utility shoppers.
“If you don't give [customers] deals, they will move into their new houses with old goods,” he said.
In order for all components of the economic recovery to be present, increased income growth must occur. This will likely not happen until a budget deal in the U.S. Congress is struck and corporations are more willing to invest, said Dhawan.
Dhawan predicts that real GDP will increase 1.6 percent in the second half of the year for an annual average of 1.4 percent. He expects GDP to expand at 2.1 percent in 2014 and at a stronger rate of 2.9 percent in 2015 (see table).
Source: Georgia State University Economic Forecasting Center Dhawan predicts that private fixed investment, which measures spending by private businesses, nonprofit institutions and households on fixed assets in the U.S. economy, will only increase by a weak 2.5 percent in 2013. He expects this figure to ultimately increase by a strong 6.5 percent in 2015.
“2013 is sealed. Done. Forget about it,” he bluntly stated. “Think about 2014 and 2015.”
He also paints a healthier picture for 2015 as he expects the unemployment rate to finally drop below 7 percent.
“There is no viable local antidote to these global and domestic headwinds,” said Dhawan. “Instead, we have to take the punch on the chin.”
— Brittany Biddy