The nation’s economy will grow in 2014. It will be anemic growth, but there are reasons to be optimistic, according to Albany economist Hugh Johnson.
One of those reasons, he said, is that the country is entering a period of prolonged economic growth that will be spurred by increasing revenues, decreasing expenses, a falling deficit and the likelihood of American energy independence by 2020.
“Everybody worries about deficits,” said Johnson, chairman and chief investment officer at Hugh Johnson Advisors, to a crowd of more than 50 Capital Region business officials, students and faculty Thursday morning at Union College’s Annual Business Campaign breakfast. “But the deficit keeps going down. Congress does not have to do anything. They do not have to increase taxes. They do not have to cut spending. They simply have to have the right fiscal policy that continues a positive trajectory for the U.S. economy, and the deficits will continue to decline. Nothing needs to be done. Leave well enough alone.”
He doubts Congress is able to follow any such idiom, however, especially at a time when Americans continue to be dissatisfied by the pace of the economic recovery. Johnson, who is nationally lauded for his forecasts, offered an outlook Thursday that predicted slow but steady growth.
Total bank lending has slowed but continues to improve. Lending to businesses has slowed but continues to improve. Real estate has slowed but continues to improve. The country’s money supply continues to improve. Leading indicators that show the economy will continue to rise have been positive eight out of the past 12 months.
The national economy will expand 1.6 percent this year, Johnson said. In 2014, it will experience accelerated growth of 2.6 percent. The labor force will likely continue to grow, but at the “extraordinarily anemic” rate of 0.9 percent, he said. Employment will also grow at an anemic rate of 0.9 percent.
“First of all, you have a lot of people that are retiring and dropping out of the labor force,” said Johnson. “And there are a lot of workers who are dropping out because they simply can’t find jobs.”
The discouragement is spurred by two factors, he said. The first is that technology grows at an exponential rate and businesses learn to do more with technology and less with people. The second, he predicted, is that businesses are cutting hours and hesitant to hire because of the upcoming Affordable Care Act employer mandate, which says employers with 50 or more employees will be fined if they don’t provide health benefits to employees.
He cited figures from a U.S. Chamber of Commerce Small Business Outlook study that were released in July, but have since been labeled misleading by the Washington Post.
“Now if you’re asking the question, ‘Why is it the case that employment growth is so anemic compared to other post-war recoveries?’ The answer is, first and foremost, technology,” said Johnson. “And now there is the possibility of the impact of the Affordable Care Act.”
He also cited another factor — something he described as America’s hangover from the “stage of revulsion” that comes after a period of mania in the U.S. economy. The nation saw this after the housing bubble burst and the economy was launched into a recession.
“The stage of revulsion is where there’s a veritable race for the exits by both the speculators and those who tried to finance their speculation,” he said. “It’s during this stage we get the revelations of swindles and scandals like Bernie Madoff.”