During an economic outlook luncheon hosted yesterday by the Missouri Council on Economic Education, a Federal Reserve Bank economist said the U.S. would continue to recover slowly through 2012 before improving slightly in 2013.
About 130 people attended the luncheon at University Plaza Hotel and Convention Center that featured Craig Hakkio, senior vice president and special adviser on economic policy for the Federal Reserve Bank of Kansas City.
Hakkio said high private-sector debt and low job growth are key factors suggesting a continuing sluggish recovery from the economic downturn of 2008 and 2009.
In June, nonfarm jobs in the U.S. grew by 80,000, which wasn't enough to bring unemployment down from its current level at 8.2 percent. Hakkio said the economy needs to create more than 150,000 jobs per month to shrink unemployment.
The U.S. gross domestic product is expected to grow by a sluggish 2 percent in 2012, and slightly more than 2.5 percent in 2013, according to Hakkio. He said unemployment in the U.S. should remain at 7 percent or above through 2014.
While the economy has grown every quarter for the last three years, Hakkio said the country has been in “a soft patch” during the last five quarters as people pay down debt and recover from the housing bust. In recent years, Hakkio said household debt has been roughly equal to the GDP, due in large part to low interest rates. The U.S. prime rate is 3.25 percent as of July 10, accordign to
FedPrimeRate.com. Prior to 1980, household debt was only about half of the GDP.
“Reducing debt, or deleveraging, takes a long time and entails very slow economic growth,” Hakkio said, adding that low interest rates in the run up to the recession were the driving force behind higher loan levels. “What’s the best way to reduce your debt? You’ve got to save more and spend less. When you spend less, economic growth is going to be weaker.”
One positive sign: Corporate profits have been at historic highs, around 13 percent of the GDP this year, which means many companies may be ready for capital investments.
“If we can see a resolution of uncertainty, firms may be prepared to invest more rapidly,” Hakkio said.
He said countries that focus on education - such as Singapore, which ranks as the top country in the world for ease of doing business and educational spending - have an advantage in an increasingly global marketplace.
Springfield Public Schools Superintendant Norm Ridder, who attended the luncheon, said investing in education is crucial if the U.S. wants a seat at the global economic leadership table.
“In countries like Singapore, Hong Kong and Finland, many teachers are paid more than doctors and lawyers,” Ridder said, adding pay levels help those countries attract top minds into the teaching profession.
The Missouri Council on Economic Education is a nonprofit organization that has helped more than 5 million students and 50,000 teachers during its 60 years in operation through youth education programs, teacher workshops, economic analysis and community forums designed to increase financial knowledge in the state, according to President and CEO Mike English. This is the second year in a row the organization has held an economic outlook luncheon in Springfield.
[[In-content Ad]]
