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Bleak US outlook

Jun 15 2012 07:10 Reuters

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THE US elections in November will be contested against the backdrop of an economy growing more slowly and creating fewer jobs than thought only a month ago, a Reuters poll of economists suggests.

Underscoring the challenge for President Barack Obama as he campaigns for a second term, economists have reduced their forecasts for jobs growth throughout 2012 and lowered predictions for all of next year too.

The median forecast for monthly jobs growth in the April-June period plummeted to 97 000 from 155 000 in the last survey, reflecting weak jobs numbers already announced for April and May.

Predictions for job creation in the remainder of 2012 were less bleak but the monthly average of 145 000 and 157 000 in the third and fourth quarters were both around 20 000 lower than in the May poll.

"Historically, presidents don't usually get re-elected when the economy is performing as sluggishly as it is now," said Nigel Gault, chief US economist at IHS Global Insight.

"Many people out there, if you asked them in surveys, they'd say they still view the economy as being in recession."

Obama's approval ratings have dipped to their lowest level since January on deepening economic worries, wiping out most of his lead in the White House race over Republican rival Mitt Romney, according to a separate Reuters poll, conducted by polling firm Ipsos and published on Tuesday.

Obama was due to make the case for his administration's economic policies in a speech on Thursday.

The Reuters poll of economists in June found that between now and October, the US economy will gain an average of 147 000 jobs a month, not enough to quickly bring down the US unemployment rate, currently at 8.2%.

Expectations for jobs growth were cut all the way through the end of 2013 when they were seen reaching 191 000 a month, down from a forecast of 200 000 in the May poll.

Economic growth is also expected to be slower.

In the third and fourth quarters of 2012, US gross domestic product (GDP) was forecast to expand by annualised rates of 2.3 and 2.4% respectively, in both cases 0.1 percentage point weaker than last month's poll.

The pace of growth in the current quarter was seen unchanged at 2%.

Uncertainty around the outcome of the US elections, the debt crisis in Europe and whether a series of US tax hikes and spending cuts will come into effect as scheduled in early 2013 has delayed many companies' hiring plans.

"You have no idea what the marginal tax rate or the payroll tax is going to be on your business in seven months. You're not going to hire someone today for six months of work," said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

The median projection for GDP in 2012 as a whole fell to 2.2% from 2.3% in the Reuters poll conducted in May and the forecast for 2013 dropped more sharply to 2.2% from 2.4%.

After a weak start to next year, some of the uncertainty is likely to subside, lifting growth to 2.6% in the last two quarters of 2013, the poll showed.

"In the US, we'll have more clarity on the health law, and with that, we'll have more clarity on taxes around the healthcare law," said Drew Matus, senior economist at UBS Securities.

"By the end of the year we'll have clarity on the election. Uncertainty doesn't last forever."

Some economists say a slowdown in productivity could require companies, which are sitting on huge piles of cash, to hire more workers, even in the face of economic turmoil in Europe.

"It's very difficult for firms to increase their profit margins because they're already very high," said Gault at IHS.

"It's getting more difficult to grow just by getting more out of your existing workforce, so we're going to have to see rather more jobs for a given growth rate."

The Federal Reserve's interest rate-setting committee is due to meet on June 19-20.

A Reuters poll last week showed economists raised their expectations that it will resort to more monetary stimulus to cushion the economy against Europe's debt crisis and boost sluggish domestic demand.

Median forecasts gave a 45% chance the Fed would eventually undertake another round of bond-buying and a 42.5% likelihood it would extend next week its Operation Twist, under which the Fed sells short-term debt and buys longer-dated bonds to lower borrowing costs.

barack obama  |  us economy  |  us elections 2012


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