The U.S. economy will muddle through the next year without a recession, but growth will be too weak to make much of a dent in the unemployment rate, forecasters believe.
In their latest outlook, top forecasters with the National Association for Business Economics predicted the economy would grow 2.4 percent in 2012, only a slight improvement from the 1.8 percent growth they expect for all of 2011.
Both estimates were a slight 0.1 percentage point higher than the group’s September forecast but would still leave the economy growing far below the pace needed to significantly lower the high unemployment rate of 9 percent.
The new survey, released Monday, is in line with other private economists, who are slightly less worried about the country slipping into a recession than they were in the late summer.
“Despite a relatively subdued outlook, the panel estimates that the odds of a second recession remain low,” said Shawn DuBravac, the chief economist for the Consumer Electronics Association and the chairman of the NABE forecasting panel.
Only two of 42 NABE forecasters on the panel predicted that the U.S. economy would suffer a decline over the near-term. But 72 percent of the panel members characterized the economic outlook as either “somewhat” or “much” more uncertain than usual. That figure, while high, was down from 86 percent who characterized the outlook that way in the September survey.
Europe is one of the biggest downside risks facing the United States currently, said Mark Zandi, one of the panel members and chief economist at Moody’s Analytics.
Tax hike ‘tough to digest’
He said another threat is that Congress is unable to resolve big differences over taxes and spending. The impasse could result in Congress failing to extend a 2 percentage point cut in the Social Security payroll tax that is due to expire at the end of this year.
If the payroll tax cut, which Congress first approved a year ago, is not extended, it would be the equivalent of a $120 billion tax hike that would trim economic growth by a half-percentage point next year, Zandi said
“A tax hike of that magnitude would be tough for the economy to digest,” especially when it’s already facing cuts by state and local governments and the loss of emergency unemployment benefits, he said.
The new forecasts for economic growth this year and next are still well below the 3 percent growth in 2010. They also fall short of expectations at the beginning of 2011 that the economy would match or surpass last year’s growth.
Those expectations were upended after the economy got hit in the spring and early summer by a series of disruptions: gasoline spiked to nearly $4 a gallon, factories slowed after Japan’s earthquake disrupted parts shipments, America’s debt got downgraded for the first time, and Europe’s own debt problems flared up. That slowed growth to an anemic 0.9 percent rate in the first six months of this year.
It rebounded to growth of 2.5 percent in the July-September quarter. The NABE forecasters believe that the economy will grow at the same 2.5 percent rate in the October-December period and would turn in 2.4 percent growth for all 2012.
That would be far below the 4 percent to 5 percent growth needed to ease the unemployment rate. For that reason, the NABE forecasters expect the unemployment rate of 9 percent to show little improvement next year, averaging 8.9 percent for the whole year. Unemployment has been stuck at 9 percent for higher for all but two months since June 2009.
Inflation predicted to increase
The economists believe that inflation will rise 2 percent in 2012, down from the 3.4 percent rise they expect for all of this year because of higher energy and food costs
Because inflation will be moderating and the unemployment rate will remain high, the NABE forecasters expect the Federal Reserve to keep a key interest rate at a record low level near zero for all next year. That will help keep other rates low as well and continue to make borrowing money easier for some consumers and companies.
The NABE forecasters predicted that Treasury’s benchmark 10-year note, around a super-low 2 percent currently, will be only slightly higher at 2.7 percent at the end of 2012.
The NABE forecasters predicted that oil prices, which finished on Friday at $97.41 per barrel, will be even lower at $94.80 per barrel at the end of next year, another factor helping hold down inflation.