U.S. growth prospects deemed bleak in new decade

ATLANTA Mon Jan 4, 2010 1:05pm EST

Eric Lipps, 52, waits in line to enter the NYCHires Job Fair in New York December 9, 2009. REUTERS/Shannon Stapleton

Eric Lipps, 52, waits in line to enter the NYCHires Job Fair in New York December 9, 2009.

Credit: Reuters/Shannon Stapleton

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ATLANTA (Reuters) - A dismal job market, a crippled real estate sector and hobbled banks will keep a lid on U.S. economic growth over the coming decade, some of the nation's leading economists said on Sunday.

Speaking at American Economic Association's mammoth yearly gathering, experts from a range of political leanings were in surprising agreement when it came to the chances for a robust and sustained expansion:

They are slim.

Many predicted U.S. gross domestic product would expand less than 2 percent per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake.

"It will be difficult to have a robust recovery while housing and commercial real estate are depressed," said Martin Feldstein, a Harvard University professor and former head of the National Bureau of Economic Research.

Housing was at the heart of the nation's worst recession since the 1930s, with median home values falling over 30 percent from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada.

The decline has sapped a principal source of wealth for U.S. consumers, whose spending is the key driver of the country's growth pattern. The steep drop in home prices has also boosted their propensity to save.

"It's very hard to see what will replace it," said Joseph Stiglitz, Nobel laureate and professor of economics at Columbia University. "It's going to take a number of years."

One reason is that U.S. consumers remain heavily indebted. Consumer credit outstanding has fallen from its mid-2008 records, but still stands at some $2.5 trillion, or nearly one-fifth of total yearly spending in the U.S. economy.

Another is that many of the country's largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department.

Kenneth Rogoff, also of Harvard, argued that if the U.S. government ever "credibly" pulled away from its backing of the financial system, then a renewed collapse would likely ensue.

He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines.

"There's something of an illusion of profitability," he said.

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Comments (3)
fred5407 wrote:
I agree that the outlook for growth is bleak in the country. We have been teaching that everyone and everything is the US is for sale to the highest bidder for the past 50 years and the change from that message has not yet begun. Our leadership is bankrupt in standing up for change.

Jan 04, 2010 2:30pm EST  --  Report as abuse
voomies wrote:
The National temp association announced last week its first year over year increase in jobs since April 2008. Read a wild job hunting story at http://storyburn.com

Jan 04, 2010 11:13pm EST  --  Report as abuse
mdspatsy wrote:
I agree on most writings from this author.
Compared to world economic scenario,Americans have utilized of buying more electronic gadgets and spent heavily on entertainment,attended many dance,parties in previous years.
For that purpose, many credit cards maximum usages had created over debt and cancellation of plastic currency at frequent intervals.
When economy was booming, many Americans had started buying,selling,acquiring ,and joined in real estate sectors.
We knew the impacts of recessions,more spending for defense purposes, Iraq,Afghan conflicts,some unrest between some nations, very slow growth in exports,heavy competitive prices offing from Chinese goods, her dependents started moving other kinds of green pastures, over spending in unorganized ways of living etc.,etc., had created more problems than finding arrest of these unwanted,things had added more miseries to Americans and American economy.
Now, there are some silver lines ,hope to set right all economic muddles at the earliest.
Land,Labor,Capital,Organization-Production-sales-service,earning,spending-consumer wants-distribution-consumer surplus-consumer equilibrium-investment-logical returns and moderate results-good planning-good execution-moderate supply and demand-inclusive growth-more exports-more determinations are to be in pipe line.
I think that,the well structured economic thoughts still holds good for individuals,corporate houses,government revenue generations and for government spending for real,good causes for nations development.

Jan 05, 2010 6:05am EST  --  Report as abuse
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