Wednesday, January 23, 2013
The upcoming year should be a good one if – and it’s a big “if” – Congress and the president address the looming debt problem, said Stephen Slifer, economist with NumberNomics, at the Chamber’s annual economic forecast luncheon Thursday.
“If these guys and ladies in Washington can reach some sort of agreement in the next two months, lots of good things are going to happen,” he said.
He predicted unemployment dropping to 7.3 percent by the end of 2013, down from 2012’s 7.8 percent.
It will be until at least 2015 before we reach full employment, he predicted.
However, if elected officials figure out the nation’s fiscal situation, then investment spending will increase, the gross domestic product will grow more quickly and the stock market will continue to rise, he said.
Slifer gave the group three dates to watch.
On Feb. 28, sequestration is scheduled to begin. Sequestration is automatic budget cuts, determined during the August 2011 debt ceiling showdown, that were designed to be painful enough to force both sides to come up with a compromise before the cuts go into effect.
On March 27, the continuing budget resolution under which the government is operating expires.
And sometime in early February, the federal government will once again bump up against the debt ceiling.
Slifer said the nation can’t afford another showdown, which last time led to huge drops in the stock market and in consumer confidence.
Further, the government simply can’t refuse to pay the bills for spending it already authorized, he said.
“If the Republicans want to hold Obama’s feet to the fire, don’t do it through this mechanism,” he said.
The nation’s long-term fiscal problems stem from its debt, he said. For the past four years, the nation has been running a $1 trillion deficit each year, and that can’t continue, he said.
Currently, the nation is projected to reach the “danger zone” of 90 percent debt to GDP in 10 years, and the problem is acute because the Baby Boomers are retiring between 2011 and 2029 and will begin collecting Social Security and Medicare.
Entitlements – primarily Social Security, Medicare and Medicaid – consume 62 percent of the federal budget, meaning there’s not enough wiggle room in discretionary spending to make a big impact on the nation’s spending, he said.
Instead, entitlements must be adjusted, he said. He talked about reducing benefits for high-income retirees, increasing the retirement age and Medicare eligibility age, increasing the payroll tax cap for Social Security and changing the benefits structure for Medicare.
Slifer said he couldn’t predict the impact of the Affordable Care Act because health care isn’t his forte.
However, he expects “pretty impressive” GDP growth of 2.7 percent this year, compared to 2 percent last year.
The stock market has recovered its value, the housing market is still recovering and has lots of pent-up demand, and some time this year Americans’ net worth should surpass their net worth from 2007, he said.
Consumers have been paying off debt so the debt ratio is now the lowest it’s been since 1983, he said, so people can spend more if they wish.
CEO confidence is up, and corporations are showing record-high profits, while corporate borrowing rates are the lowest they’ve been since the 1960s and corporations have “plenty of cash” to invest.
“These guys are looking to pull the trigger. They’ve got the money. …. But we’ve got to get rid of this uncertainty,” Slifer said.
Slifer said homeownership rates could be permanently changed, as more people choose to rent.
Nonethless, 1.3 million new households are formed each year, and those people need places to live, he said, so home and apartment construction is poised for recovery.