Lockhart: growth to stay slow in 2013
By Maria Saporta
Economic growth in 2013 will be much like economic growth in 2012 — slow, according to Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.
Lockhart gave his annual economic forecast to the Rotary Club of Atlanta Monday — stating that the views he shared were his own rather than official policy from the Fed.
“So we begin the year in a mode of slow overall growth, tolerable inflation and gradual progress on unemployment,” Lockhart said. “Over the last months, our narrative has not changed much. The continuing theme is slow growth hovering around 2 percent. This rate of growth is below potential and compares unfavorably with past recoveries. We remain in a long slog.”
Specifically, Lockhart said that the Atlanta Fed expects the Gross Domestic Product to grow in the range of 2 to 2 ½ percent in 2013.
But much will depend on how the federal government will hand its fiscal policy deliberations. Business does not like uncertainty, so if a deal can be reached to reduce the nation’s deficits, it could encourage companies to begin investing more in their enterprises.
Such investment is considered critical to reducing the nation’s unemployment rate, which currently is hovering between 7.8 and 8 percent. The goal should be to reach a 6 ½ percent threshold. If the economy continues to grow at an average of 160,000 jobs a month, as it has been in the past six months, it will take nearly three years to reach that rate.
But if the economy grows at an average of 184,000 jobs a month, it will take about two years to reach an unemployment rate of 6 ½ percent.
Lockhart was asked about the relationship between manufacturing, job growth and productivity.
“Robotics and automation is the future of manufacturing in the United States,” said Lockhart, adding that manufacturing is enjoying a renaissance in the United States, which remains in the top tier of manufacturing nations in the world. “What has declined is employment in the manufacturing sector.”
Lockhart compared that change to what the agricultural industry experienced in the last century. It required fewer and fewer people to grow and produce the food because of modern farming practices.
When asked about the inability of Congress to pass a budget, Lockhart said raising the debt ceiling to pay outstanding bills could be more of a critical issue.
“I have a more immediate concern on how the debt ceiling is going to be handled and what kind of political spectacle that might be,” Lockhart said, adding that such a fight to not raise the debt ceiling could destroy confidence in the U.S. economy, not only domestically but around the world.
Another Rotarian asked about how big the debt can be relative to the nation’s GDP. Lockhart said that the maximum debt a nation can handle is about 85 percent to 90 percent of its GDP. More than that, the servicing of the debt begins to weigh down potential growth.
“Today we are around 70 percent,” Lockhart said. “We are not at 85 or 90 percent, but it’s the trend we have to worry about.”