WASHINGTON – Hello, 2015. We now are in the sixth year of economic recovery since the end of the Great Recession in mid-2009, says the National Bureau of Economic Research, a group of academic economists that dates business cycles.
But, if upbeat economic forecasts come true, this could be the first year that feels like a recovery. There would be huge implications. It would soothe Americans’ bruised sense of self-worth and alter popular psychology for the 2016 elections.
This plodding is over, say many economists. Or soon will be. IHS Economics, a major forecasting firm, predicts that GDP will grow 3.1 percent in 2015 and that monthly job creation will average a solid 230,000. If these gains occur, 2015 will be the recovery’s best year. Since 2010, annual GDP growth has averaged only 2.2 percent.
The United States would overshadow Europe and Japan, whose economies are stagnating. “The United States has been faster at deleveraging (reducing household and business debt burdens) and increasing bank capital,” argues Nariman Behravesh, IHS’ chief economist. Europeans and Japanese are still deleveraging. “As consumers deleverage, they spend less,” he says. “As banks deleverage, they lend less.”
The U.S. economy would also approach “full employment.” That’s the lowest level of unemployment consistent with stable inflation. If unemployment falls further, the theory goes, competition among firms for scarce workers will trigger a wage-price spiral. The precise unemployment rate for full employment is uncertain and controversial, though the range is usually put between 4 percent and 6 percent.
Whatever it is, we’ve been far from it for years. Now we’re closer or, perhaps, already there. Unemployment by year-end could be as low as 5.4 percent, says Behravesh. There will also be glad tidings for corporations. Economist Beth Ann Bovino of Standard & Poor’s expects operating profits to rise about 6 percent in 2015 and stocks to make a almost comparable gain.
Naturally, all these predictions won’t come true. An old military adage warns that “no battle plan survives contact with the enemy.” The same can be said of economic forecasts. None completely survives contact with reality. There’s a long history of surprises – for good and ill – obliterating plausibles predictions.
Some threats to the consensus optimism are plain. Economist David Levy of the Jerome Levy Forecasting Center judges there’s a 65 percent chance that slumps and slowdowns in Europe, Japan, China and “emerging market” countries will cause a global recession that ultimately drags down the United States. American vulnerability would arise from weaker exports and reduced foreign profits – they represent almost a third of corporate earnings – as well as a general blow to confidence.
The Federal Reserve also poses a danger. It might miscalculate on interest rates. The Fed is widely expected this year to begin raising short-term rates, which have been near zero since late 2008. It’s worth remembering that all this occurs against a backdrop of heightened anxiety bred by the financial crisis and Great Recession. The reaction to these unforeseen calamities was to hunker down – for consumers and companies to skimp on spending. This is the largest cause of the weak recovery. The question now is whether almost six years of this has had a calming effect – no further disaster has ensued – and restored some optimism. Is the economic slog really over? Or are we just fooling ourselves?
Robert Samuelson is a columnist for The Washington Post. 2014 The Washington Post Writers Group.
