The Free Press, Mankato, MN

State, national news

February 9, 2014

U.S. economy may be stuck in slow lane for long run

WASHINGTON — In the 4½ years since the Great Recession ended, millions of Americans who have gone without jobs or raises have found themselves wondering something about the economic recovery:

Is this as good as it gets?

It increasingly looks that way.

Two straight weak job reports have raised doubts about economists' predictions of breakout growth in 2014. The global economy is showing signs of slowing — again. Manufacturing has slumped. Fewer people are signing contracts to buy homes. Global stock markets have sunk as anxiety has gripped developing nations.

Some long-term trends are equally dispiriting.

The Congressional Budget Office foresees growth picking up through 2016, only to weaken starting in 2017. By the CBO's reckoning, the economy will soon slam into a demographic wall: The vast baby boom generation will retire. Their exodus will shrink the share of Americans who are working, which will hamper the economy's ability to accelerate.

At the same time, the government may have to borrow more, raise taxes or cut spending to support Social Security and Medicare for those retirees.

Only a few weeks ago, at least the short-term view looked brighter. Entering 2014, many economists predicted growth would top 3 percent for the first time since 2005. That pace would bring the U.S. economy near its average post-World War II annual growth rate. Some of the expected improvement would come from the government exerting less drag on the economy this year after having slashed spending and raised taxes in 2013.

In addition, steady job gains dating back to 2010 should unleash more consumer spending. Each of the 7.8 million jobs that have been added provided income to someone who previously had little or none. It amounts to "adrenaline" for the economy, said Carl Tannenbaum, chief economist for Northern Trust.

And since 70 percent of the economy flows from consumers, their increased spending would be expected to drive stronger hiring and growth.

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