Spending Will Trump Sequestration; Better Unemployment and GDP in 2013 and 2014


The message you need to send to Washington D.C. is that consumer spending is outshining the ill effects of the sequestration cuts. A new report from the National Association for Business Economics (NABE) is forecasting positive economic trends for 2013 and 2014. We have shown general trends from the report, followed by more detail. We have seen weaker regional and national reports in general, but this is yet another forecast that the United States will avoid falling back into recession this year and the next.

NABE panelists suggested an improvement in real gross domestic product (GDP) growth to 3% in 2014. Panelists suggest an even stronger decline in government spending this year relative to last year, which could negatively affect GDP growth. Although the panelists suggest that government spending will decline by 2.3% for 2013, they estimate that it will only decline by 0.9% in 2014. Year by year, the panel projected 2.1% GDP growth for 2013 and 2.9% GDP growth for 2014.

Panelists are more upbeat regarding consumer spending and residential investment in 2013 and 2014 relative to 2012. Panelists also predicted an improvement in the unemployment rate and in wages and output for this year and next year. The panelists suggest that personal consumption spending will grow at 2.3% in 2013 and at 2.6% in 2014, versus 1.9% growth in 2012. With some 70% or so of GDP tied to consumer spending, this measurement is very important to the GDP equations.

Overall, the panelists did not indicate any significant increase in inflation for 2013 and 2014. They also expect that the easy money under the current federal funds rate will remain unchanged for 2013 and 2014. We noted an improvement in the average annual unemployment rate. Panelists expect that unemployment will average 7.6% in 2013 and 7.1% in 2014. As far as year-end projections, those were put at 7.4% by the end of 2013 and 7.1% by the end of 2014.

Light vehicle sales totaled 14.4 million units in 2012 and the panel expects that this will rise to 15.4 million in 2013 and 15.9 million in 2014. Industrial production is expected to rise by 3.1% in 2013 and 3.5% in 2014. Residential investment is expected to grow by about 15% in 2013 and in 2014. Housing starts are expected to rise from 780,000 or so in 2012 up to a million units in 2013 and 1.18 million units in 2014.

The May 2013 NABE Outlook was generated with the consensus of macroeconomic forecasts from a panel of 49 professional forecasters covering the outlook for 2013 and 2014. Polling was conducted from April 16 to April 30.

Filed under: 24/7 Wall St. Wire, Consumer Product, Economy, Labor