U.S. economic growth next year should be the strongest since the Great Recession as automatic federal spending cuts play a lesser role in reducing growth, and more confident consumers increase their spending, according to an executive from Wells Capital Management.
A sluggish recovery should hit its stride in 2014 with growth reaching 3 percent for the first time since the recession, and remain at or near that pace for the next several years, Jim Paulsen, the company's chief investment strategist, said Thursday at the Southern Colorado Economic Forum in Colorado Springs.
So far this year, the U.S. economy has grown at a paltry 1.8 percent rate, though the growth rate was 2.5 percent during the second quarter, after adjustments for inflation, according to the U.S. Bureau of Economic Analysis.
"The private sector is already growing at a 3 percent rate, but you have sequestration (automatic federal budget cuts) and contraction in the public sector that is reducing the overall growth rate. If the public sector stops contracting, you will have a 3 percent overall growth rate," Paulsen said. "I don't believe we are even halfway through this recovery and are a long way from the next recession."
A Federal Reserve Bank of Kansas City economist made a similar forecast for the U.S. economy Wednesday at an economic forum the bank hosted in Pueblo.
Paulsen forecast that the U.S. unemployment rate will fall to the "low- to mid-6 percent range" from the 7.3 percent rate in August, the lowest monthly rate since the end of 2008. The nation's jobless rate hasn't been at 6.5 percent or below since October 2008, according to the U.S. Bureau of Labor Statistics.
He also predicted that the nation's stock market "will have another leg up" next year but mortgage rates also will increase, though he expects the U.S. inflation rate to remain in the 2 percent range through 2014.
U.S. consumers have plenty of capacity to spend with their collective net worth at a record $75 trillion and their debt burden at an all-time low, when adjusted for inflation, Paulsen said. Consumer confidence is at a five-year high and continues to grow, a key barometer of how willing people are to spend. Growth has resumed in the European Union for the first time in several years and is accelerating in emerging economies, meaning most of the economies across the globe are growing simultaneously for the first time since the recession, he said.
The local economy is expected to gradually improve next year with strong growth in both residential and commercial construction and payrolls expanding by about 2 percent, or 5,000 jobs, according to the forum's forecast.
Paulsen is based in the Minneapolis office of Wells Capital, which is a unit of Wells Fargo & Co. that manages assets of more than $300 billion.
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