World Economy

Economists See ‘New Normal’ of Slow Growth in America

The economy has been hobbled by an aging work force and weak gains in productivity.The economy has been hobbled by an aging work force and weak gains in productivity.

Americans should get used to a “new normal” of slow economic growth, business economists say.

Median estimate from economists surveyed by the National Association for Business Economics calls for the American economy to grow 2.2% in 2017, up from a forecast 1.6% this year and unchanged from the previous survey in September, AP reported.

The improved number is still lackluster by historical standards. US economic growth averaged 3.1% a year from 1948 to 2015, according to the Congressional Research Service. But the business economists say Americans need to get used to slow growth: 80% of those surveyed believe the potential growth rate of the American economy will remain at 2.5% or lower over the next five years.

The economy has been hobbled by an aging work force and weak gains in productivity. Still, the economists see the risk of a recession as remote; 90% expect the current economic expansion to continue until at least 2018.

They expect employers to add an average 168,000 jobs a month in 2017, down from 180,000 a month so far this year. Those surveyed also predict the unemployment rate, which fell to a nine-year low 4.6% last month, will average 4.7% in 2017.

A healthy job market means wage growth is likely to outpace inflation this year and next, the economists say. They see consumer prices rising 2.3% next year, almost double the 1.2% increase they expect this year.

Two-fifths of the economists say increased spending on roads, bridges and other infrastructure projects would be the best way to boost economic growth over the next four years; 36% chose tax reform, which usually includes reducing the high official US corporate tax rate in exchange for closing tax loopholes. 

 Pensions Time Bomb

Underfunded government pensions to the tune of $1.3 trillion, with a gap that just can’t be filled, is the ticking time bomb facing the US economy, which faces dramatic cuts in public services and potentially riots reminiscent of Athens six years ago, Business Insider reported.

Danielle DiMartino Booth is the tough talking former Federal Reserve advisor and president of Money Strong, with an insider’s perspective on finance. As she picks apart the danger signs with the US on the precipice of recession, it’s the impending pensions crisis that’s really keeping her awake at night.

“The baby boomers are no longer an actuarial theory,” she said. “They’re a reality. The checks are being written.”

The $1.3 trillion pensions deficit just takes into account state and municipal obligations and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover. “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.”

The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They’re turning 71. And the physiological decision to stay in the workforce won’t work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.

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