Strong start to 2013 not going to last for U.S. economy: Reuters poll

NEW YORK Thu Apr 11, 2013 10:38am EDT

1 of 2. A job seeker reads job postings at the Virginia Employment Commission office in Alexandria, Virginia November 6, 2009.

Credit: Reuters/Molly Riley

NEW YORK (Reuters) - After a strong start to the year, the world's largest economy is set to slow as some of the effects of government spending cuts take hold, likely leaving the central bank's extraordinary stimulus in place into at least 2014.

Still, the labor market is expected to continue healing this year, even after last month's disappointingly weak job gains, and the housing recovery should gain momentum. Both should help keep the economy from cooling too much.

Economists in a Reuters poll taken after the latest job report ratcheted up their forecasts for first quarter growth to an annualized 3 percent from the 2 percent forecast last month.

But that pace is not expected to last, slowing to 1.6 percent in the second quarter before picking up to 2 percent for the rest of the year.

While the consensus for the first quarter is the highest since polling began for that period in October 2011, the second quarter expectation in the poll is the lowest.

"We are expecting growth to slow but I wouldn't throw this into the category of another 'spring slowdown'," said Michael Gapen, senior U.S. economist at Barclays Capital.

A solid start followed by a weaker spring has been the norm for the economy in recent years, though past years have had more to do with flare-ups in the euro zone debt crisis, said Gapen.

"This year, we think it's mainly a very large fiscal policy drag in the U.S.," he said, estimating that fiscal tightening will take 1.8 percentage points off of growth this year compared to 1 percent in each of the past two years.


Across-the-board government spending cuts of $85 billion went into effect at the beginning of March.

Beyond reducing spending, the hit to the economy could also show up through actions such as furloughs, job cuts or lost contracts in the private defense sector.

Truck and military vehicle maker Oshkosh Corp (OSK.N) said on Tuesday it will cut about 900 jobs in its defense business due to U.S. budget cuts.

Consumer spending could also cool after holding up surprisingly well in the first months of 2013.

Payroll taxes increased at the beginning of the year and economists expect that could prompt Americans to curb purchases. Consumer activity makes up about two-thirds of the U.S. economy.

Tighter fiscal policy and an economic recovery that is still vulnerable to setbacks suggest that the Federal Reserve will leave its stimulus efforts in place for at least another year.

"The key offset has been monetary policy. I think in this battle between fiscal drag and monetary stimulus, the Fed is winning," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

The Fed is currently buying $85 billion a month in assets to keep borrowing rates down and boost the economy.

The latest round of quantitative easing - known as "QE3" - is open-ended, and the central bank has said it will continue the program until the labor market outlook improves substantially.

The number of analysts calling for the Fed to end its current bond buying program this year has gradually come down over the last three months.

Thirty-five of 45 analysts anticipated the Fed would end its current round of QE not this year, but in 2014.

Only seven respondents expected the Fed to end its bond purchases later this year, while the remaining three thought the central bank would extend the program out to 2015.

Of those that forecast 2014, the majority said the purchases would end sometime during the first half of the year.


Economists expect the unemployment rate to steadily improve this year, with a median forecast of 7.6 percent for 2013, down from the 7.7 percent seen in January's poll.

Although that consensus for this year is the lowest since polling began for that period in January 2012, a majority, 33 of 48, expect the unemployment rate to fall to the Fed's target of 6.5 percent only in 2015. Ten said that would to happen sometime next year and the remaining five said only in 2016.

Housing, long the thorn in the economy's side, will likely build on the recovery it began last year with a 7.1 percent gain in home prices in 2013. That is expected to slow to a 5 percent rise the following year. Both figures are sharply higher than the 4.2 percent and 3.4 percent consensus figures from January.

(Polling and analysis by Snehasish Das and Rahul Karunakar; Editing by Ruth Pitchford)

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Comments (4)
mikemm wrote:
The sequester was a kick in the balls, which is exactly what the GOP wanted to deny the administration an improving economy, but housing starts are up, auto and truck sales are up, factory orders are up, and there are still several other good signs of recovery.
There may be a delay in hiring along with more cuts coming to some public sector jobs, but companies will need to start hiring if they want to get any lasting gains on their competition. Being too gun-shy about expanding when the market is showing definite signs of growth can have long term consequences on companies with their niche being filled by others willing to get in the game sooner rather than later.

Apr 11, 2013 11:18am EDT  --  Report as abuse
todnwth wrote:
The republicans will put their party above the good of the country just because we have a black democrat as president.
They will do all they can to keep the country decline as long as Obama is president which is stooping lower than the lowest sewer in this country.
There is level they will not stoop to make the economy tank to keep Obama from expanding the economy, repair the infrastructure and cut defense and the intelligence agencies and then be the first to criticize if we have a terrorist attack on an American embassy or in this country regardless of how small!!!

Apr 11, 2013 12:05pm EDT  --  Report as abuse
fred5407 wrote:
todnwth and mikemm: Are you still in the illusion that the Government spending can carry the ecomomy, and do you still think the US can borrow its way to prosperity. Adding trillions to the debt is just as crazy as putting a new car on a 100 percent 7 year loan. The US needs to get a grip or we will crash worse than in 2008.

Apr 11, 2013 2:04pm EDT  --  Report as abuse
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