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Moody's Analytics sees stronger US economy ahead

Thursday, 11 Oct 2012 | 6:43 PM ET

NEW YORK -- Moody's Analytics' chief economist thinks the U.S. economy could revive next year and cause the pace of growth to roughly double from its current rate by 2014 -- unless Washington runs right over the "fiscal cliff" next year.

In a report out Thursday Mark Zandi said hiring and economic growth should get stronger next year. And by 2014 the economy will be adding more than 250,000 jobs a month and nearing a growth rate of 4 percent.

By contrast the economy expanded at a 1.3 percent annual rate in the April-June quarter, and most economists expect it will remain below 2 percent for the rest of this year. The government's most recent jobs report showed employers added a modest 114,000 workers to their payrolls last month.

Zandi's brighter outlook for the next two years assumes Congress and the White House tackle "fiscal issues," he writes. In other words it will take Republicans and Democrats finding ways to avoid the collection of automatic tax hikes and spending cuts at the end of the year. If they don't, the Congressional Budget Office and many economists say the result would likely knock the economy into a recession.

Moody's report says uncertainty over that danger is weighing on businesses. According to the Moody's Analytics Business Confidence Survey, the top concern is "the wave of tax increases set to take effect at the end of the year as part of the fiscal cliff."

"As long as businesses are nervous about government policy, hiring will remain depressed and the broader economy will grow slowly," Zandi said.

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