The U.S. economic recovery from the recession will be slower than previous recovery periods because Americans will be saving more to get themselves out of debt, the UCLA Anderson Forecast said in its third-quarter report Wednesday.
In addition, companies will be hesitant to expand because of lack of public-policy clarity from the Obama Administration.
Gross domestic product will grow at a "tepid" 1.4% year-over-year rate this quarter and at a 2% clip for the following four quarters as the U.S. housing market may experience what many fear will be a "double-dip" in prices and sales activity, according to the Forecast. GDP growth rates, which are typically 5% to 6% coming out of recession, won't approach 3% until late 2011.
The Forecast contrasts with many economists, analysts and business leaders who've recently called an end to the recession and said the economy is on the verge of substantial growth. Berkshire Hathaway (BRK.A) CEO Warren Buffett said at a conference this week that a second, near-term recession in the U.S. is unlikely and that his companies have boosted hiring over the past couple of months, according to Bloomberg News.
Meanwhile, Richard Berner, co-head of global economics for Morgan Stanley, and among the first economists to predict the recession, indicated that the U.S. consumer is actually stronger than most think, Bloomberg said in a separate report. Berner said households are reducing debt and increasing their savings faster than anticipated, giving them more room to spend in the future.
Still, because much of the recession was caused by a debt crisis, the recovery period will be longer because, instead of spending on consumer products, people are using any excess cash to pay down debt, according to the Forecast.
"What normally happens in a recovery is that the proverbial baton is passed from government spending and inventory restocking to housing, consumer spending and investment," wrote David Shulman, senior economist at the UCLA Anderson Forecast, in the report released today. "In this recovery, somewhere along the way the baton was dropped as housing appears to have double-dipped and consumer spending never really took off."
Additionally, companies are holding off on investing substantially either in products or additional labour because of uncertainty regarding how the Obama Administration will change policies relating to taxes, healthcare, the environment and financial institutions, according to the Forecast, which estimated that unemployment will remain above 9% until 2012.
That the Forecast differs from other bullish predictions is illustrative of recent results of consumer and business spending that reflects an economy in flux. U.S. retail sales, which include gas, food, and auto sales, last month increased 3.6% from a year earlier, according to the U.S. Commerce Department. Sales were up 0.4% from July, which is about what analysts had forecast, though some said the results were disappointing given strong second-quarter results from companies such as Best Buy Inc. (BBY) and Tiffany & Co. (TIF).
Still, the International Council of Shopping Centers reported sales for the week ended Sept. 11 rose 2.6% from the year before. More importantly, sales were up 0.8% from the week before. Additionally, businesses boosted inventories by 1% in July, marking the largest monthly gain in two years, according to a report this week from the U.S. Commerce Department.