WASHINGTON – Politicians and economists are straining to get a clearer view of what the economy will look like a year from now, when midterm political campaigns are heating up. Republicans see the glass as half empty; Democrats view it as half full. And the economists aren’t sure.
“Our economy is recovering at the slowest rate since World War II,” House Speaker John Boehner, R-Ohio, said to a group of manufacturers. “Quarter after quarter, the growth numbers barely move, unemployment stays about the same.”
Democrats beg to differ.
“There are a lot of reasons for us to feel optimistic about where we’re headed as a country,” President Barack Obama tells audiences, citing steady jobs gains, a falling deficit and a more stable housing market.
Which is it? Economic forecasters are torn.
And their forecasts suddenly are all over the map. Some see U.S. growth stuck below 2 percent for some time, while others – among them the Federal Reserve and the White House – predict it will climb above 3 percent as soon as next year.
While the economy clearly is on the mend, the different forecasts stem from the fact that the recovery’s pace is uneven, economic growth remains anemic, and the unemployment rate still is stubbornly high four years after the deep 2008-09 recession ended.
Feeding the uncertainty are confusion about when the Federal Reserve will start turning off the easy-money faucet and the sharp partisan divides on Capitol Hill about spending cuts, raising the U.S. debt ceiling and funding the government for the budget year that begins Oct. 1.
Assumptions about yet-to-be-made decisions by Washington policymakers can have an enormous effect on forecasts.
“Forecasting these days is difficult. There are a lot of imponderables out there,” said Nariman Behravesh, chief economist for IHS Global Insight, an economic forecasting firm. He’s telling clients that right now, economic growth is likely to remain between 1.5 and 2 percent through September. “Employment growth will be OK, but not great.”
But a lot depends on Congress.
“And the politics are such that the closer we get to the midterm elections, it’s more likely that nothing is going to be done,” he said.
It’s not a new predicament. An exasperated President Harry Truman once famously pleaded for a one-armed economist, complaining, “All my economists say, ‘On the one hand ... on the other.’”
“There’s still a fair amount of angst about fiscal policy. And the level of the angst is definitely a function of whether you’re a Republican or a Democrat,” said Mark Zandi, chief economist at Moody’s Analytics, another economic forecaster. “And then as you move into next year and the elections, there’s going to be more hand-wringing as well because of the political back-and-forth.”
Even so, Zandi is optimistic.
“We are going to start to see stronger growth,” he said. “The fiscal drag will fade, the housing recovery will add more juice to growth and the Federal Reserve will be able to manage through this in a reasonably graceful way.”
Most economists see a slowly recovering economy, but not all. There’s always that “other hand.”
“The economy is as sick today as it was prior to the financial crisis and the Great Recession. Those were caused by fundamental dysfunctions that remain unfixed,” said business economist Peter Morici of the University of Maryland.
