Economists' latest forecast: Better, but not great
The U.S. economy is likely to grow a bit more quickly next year, but don't look for big changes in the pace of new hiring.
That sluggish pace of job growth will keep paychecks nearly flat and continue to weigh on household budgets and consumer spending, according to economists who track the health of a broad range of businesses and industries.
The improvement in the coming year will be gradual, according to a survey of the forecasters' outlooks, with the pace of growth picking up to 3 percent by spring—from the 2.5 percent pace reported by the government for the second quarter.
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That will keep the pace of hiring next year at about 200,000 new jobs a month, only slightly higher than the average rate of about 190,000 this year, according to a survey of the National Association of Business Economists at the start of their annual meeting in San Francisco.
At that pace, the jobless rate would fall to 6.8 percent by the end of next year, extending one of the weakest job recoveries from any recession in a half century. If the sluggish job recovery continues at the same pace, it will take another 4½ years for the unemployment rate to reach its prerecession low of 4.4 percent.
Until then, workers looking for a raise will have a hard time finding one. The forecasters expect hourly compensation to inch up by 1.9 percent for all of 2013 and rise a bit to a 2.4 percent gain in 2014. But after adjusting for the forecasters' inflation predictions, that will leave workers with pay gains of just three-tenths of 1 percent in both years.
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Without more income, consumers will have a hard time boosting spending, the source of 70 percent of the U.S. economic growth. Hit by higher taxes this year and tight monthly budgets, stretched consumers will boost spending by just 2 percent for all of 2013, according to the latest forecast. That's down from the forecasters' 2.3 percent prediction in May. For next year, the economists expect spending to rise by 2.6 percent.
While the pace of the overall growth in spending will remain tepid, this year's surge in home sales and prices will remain on track in 2014, but at a slower pace, according to the panel. They expect home price to rise by 6 percent for 2013 and 4.8 percent next year. The housing recovery will likely slow as mortgage rates—which jumped sharply this summer—continue a gradual rise.
Those higher rates will come as the Federal Reserve slows it's easy-money policy of buying $85 billion in bonds a month to hold down interest rates, the group predicted. They forecast that the 10-year Treasury yield rise to 2.76 percent by the end of the year, up from about 2 percent now, and keep rising to 3.29 percent by the end of next year.
Car dealers can look forward to another good year of sale, which have been zooming thanks to relatively easy credit and a fleet of aging clunkers that are long past due for replacement. The economist group expects dealers to sell 15.5 million light vehicles this year, up from 14.4 million units last year, but less than a projected 16 million units in 2014.
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While wage earners are looking at another tough year, corporate executives and investors have reason to be more upbeat, based on the group's forecast. The panelists expect that corporate profits after taxes will continue to rise—up 5 percent for the full year and 7.2 percent in 2014. The S&P 500 Index, which started the year at 1,426, is expected to rise to 1,700 by the end of this year and close out 2014 at 1,764. Those higher profits will come, in part, because businesses are expected to pare back their spending on buildings, equipment and software next year, based on the panel's estimate.
The pressure to cut federal spending, a major drag on economic growth since the $85 billion "sequester" took effect this year, should ease somewhat thanks to a shrinking federal deficit. Nearly half the panelist said those spending cuts will clip about a half percentage point from the annual pace of GDP growth in the last three months of this year.
Thanks to those sequester cuts—along with higher payroll taxes and a windfall in capital gains taxes and other one-time gains—last year's $1 billion budget deficit will shrink by more than a third when the government closes the books on the current fiscal year on Oct. 1, the panel predicted. They expect that, after falling 2.1 percent this year, government spending is likely to contract by just a half percentage point next year, easing the impact on overall economic growth.
—By CNBC's John W. Schoen. Follow him on Twitter @johnwschoen.