The Breakdown

Explaining Southern California's economy

Why the US economy is stuck at 2 percent growth

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The U.S. Commerce Department just released data on U.S. economic growth in the third quarter. The nation's gross domestic product (GDP) was 2 percent, a significant improvement over the second quarter's 1.3 percent.

Conveniently, I was at the Orange County Business Council's 18th annual economic forecast Thursday and heard two California State University Fullerton economists grapple with the implications of what it means to be "2 percenters" when it comes to GDP growth.

Anil Puri and Mira Farka will be familiar to readers of the DeBord Report. I've covered their presentations on several occasions and attended last year's forecast. At that time, I suggested that Puri and Farka were basically forecasting a slow-growth, high-unemployment economy for 2012 — which is pretty much what we got. I call this "stuckflation," a reference to the infamous "stagflation" of the 1970s, with the main differences being that we do not currently have the high interest rates and high inflation of the Carter era.

"Is this the the new normal, a lost decade," I asked last year.

Well, a year later and the stuckflation is most definitely here. Puri and Farka's forecast was titled "Prospects for Growth in Uncertain Times" and the twin themes of tepid growth and uncertainty dominated their outlook.

"We are living in a 2 percent economy," Puri said, anticipating the Commerce Dept.'s gloomy third-quarter verdict by about 24 hours.

A 2 percent economy isn't capable of adding much more than 200,000 jobs each month — and that's what we're seeing right now, after some more robust job growth the first quarter of the year.

Puri was completely unflinching in his assessment. "The only percentage that matters is the rate at which the economy is growing."

Forget about the "1%" of the Occupy Wall Street movement of the "47%" of Americans that Mitt Romney alledged are freeloaders. For Puri, those percentages are a distraction from the Big One: Growth.

"Call us the 2 percenters," he said.

Farka expanded on the theme, while also comparing the economy to Honey Boo Boo, the 6-year-old beauty pageant reality show phenomenon. (Farka is the absolute polar opposite of a dull, number-mumbling economist with a data-laden PowerPoint presentation.)

"We are stuck like velcro," she said. We're neither tipping forward nor back. Subpar has become normal."

She added that in the 1970s, '80s, and '90s, growth was averaging about 3 percent annually. "That's where we want to be," she said. "Not at 2 percent." 

Why? Because a 2 percent economy has no resilience. "In a 2 percent growth economy, everything matters," she said. "Small shocks have a big effect."

The outlook isn't very exciting for next few years. But that's stuckflation. It demands patience. For example, Puri and Farka are forecasting sub-2-percent growth — 1.8 percent — for all of 2013, with unemployment dipping to only 7.7 percent nationally, from its current 7.8 percent. 2014 looks better: 2.7 percent GDP growth and a 7.3-percent unemployment rate.

Orange Country's outlook is better.

"The good news is that Orange County's recovery has recently gathered more strength than the national economy," Puri and Farka wrote in the forecast. "In particular, after the deep national downturn led by the housing sector collapse, the country's housing and construction sectors have shown real signs of a self-sustained, broad-based organic recovery."

Unemployment in Orange County has dipped below the national rate, and the improving housing situation is begining to perform its traditional role in recoveries: Leading the economy, locally and nationally, that it has in prior recoveries. Farka also indicated the ongoing U.S. energy boom could see the country become the world's largest exporter of oil and national gas.

So, optimism. But for the next year or so: stuckflation.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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