News Column

Economists See Less Pain in 2013

October 25, 2012

By Tim Mullaney, and Barbara Hansen, USA TODAY


The economy will strengthen modestly over the next year -- if the U.S. ducks double-barreled damage from Washington's budgetary indecision -- according to USA TODAY's quarterly survey of economists.

Next year is likely to be one of slow gains from the deep recession that ended 3 years ago, with low odds of a new recession, many say.

Almost two-thirds of the 48 economists surveyed predict the fiscal cliff issue -- the large spending cuts and tax hikes scheduled to kick in at year's end if Congress doesn't act -- will be resolved without significant damage to the economy.

According to their median forecast:

The economy will grow 2.3% next year, up from an average of 1.65% in the first half of 2012, according to the median estimate of 48 economists. Growth of 3% or more is considered a healthy rate.

The unemployment rate, now 7.8%, will end next year at 7.6%.

By 2013's fourth quarter, the economy will be adding jobs at an average monthly rate of 175,000, compared with a forecast pace of 130,000 a month this quarter.

Business investment growth, estimated at 4.2% in this quarter, will rise to 7.5% in next year's fourth quarter.

Federal Reserve policymakers provided a similarly cautious outlook in a statement following their two-day meeting Wednesday. It didn't scale back aggressive steps it took last month to stimulate the still-sputtering recovery.

To push down mortgage rates, Fed policymakers agreed to continue to buy $40 billion a month in mortgage-backed securities until the job market improves significantly. And they repeated that short-term interest rates will likely stay near zero until at least mid-2015.

Some economists say 2013's economy could grow perhaps half a percentage point more than they expect if not for the uncertainty created by Washington's stalemate over what to do about deficit-reduction issues. Going over the fiscal cliff could throw the U.S. into a recession, according to the Congressional Budget Office and private economists.

A majority believe Washington should cut the deficit, but not all favor the same steps.

Nearly three-quarters of the economists believe the 2010 payroll tax cut should be allowed to expire at year's end. About two-thirds think the Bush tax cuts should be extended, even for top-bracket taxpayers. Almost the same proportion said raising the top tax rate would be "somewhat negative" for job creation by small businesses, with 7% calling it "very negative."

"The recovery has weakened enough that it couldn't withstand the expiration of the Bush tax cuts," said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. "A lot of small-business owners are in the top bracket, and that affects job creation."

Contributing: Paul Davidson

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Source: Copyright USA TODAY 2012

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