Analysts forecast solid growth for US economic rebound

NEW YORK — For more than a decade, the economy has failed to grow the way it once did. Unemployment has not stayed this high, this long, since the 1930s.

But could the New Normal, as this long economic slog has been called, be growing old?

That is the surprising new view of a number of economists in academia and on Wall Street, who are now predicting something the United States has not experienced in years: healthier, more lasting growth.


The improving outlook is one reason the stock market has risen so sharply this year, even if street-level evidence for a turnaround, like strong job growth and income gains, has been scant so far.

Get Ground Game in your inbox:
Daily updates and analysis on national politics from James Pindell.
Thank you for signing up! Sign up for more newsletters here

A prominent convert to this emerging belief is Tyler Cowen, an economics professor at George Mason University near Washington and author of “The Great Stagnation,” a 2011 bestseller, who has gone from doomsayer to a decidedly more optimistic perspective.

He is not predicting an imminent resurgence. Like most academic economists, Cowen focuses on the next quarter-century rather than the next quarter. But new technologies like artificial intelligence and online education, increased domestic energy production, and slowing growth in the cost of health care have prompted Cowen to reappraise the country’s prospects.

“It’s better than it looked,” Cowen said. “Technological progress comes in batches and it’s just a little more rapid than it looked two years ago.” His next book, “Average Is Over: Powering America Beyond the Age of the Great Stagnation,” is due out in September.

Certainly, there are significant national headwinds that will not abate anytime soon, including an aging population, government austerity, the worst income inequality in nearly a century, and more than 4 million long-term unemployed workers.


These and other forces prompted some leading economists, led by Robert J. Gordon of Northwestern, to conclude not long ago that the arc of American economic growth for centuries was over, to be replaced by decades of stagnation. Productivity might grow steadily, Gordon argued, but the benefits will not flow to most Americans.

Other analysts are challenging that perspective, which they said was colored, in part, by the severe downturn that hit the global economy more than five years ago. And some of them now see a brighter outlook right around the corner, not just far into the future.

Two widely followed economic forecasters, Morgan Stanley and IHS Global Insight, have both increased their estimates for growth in recent days.

“It’s been a long time coming,” said Nariman Behravesh, chief economist at IHS. “There is more optimism about the US and in particular about the second half of this year and 2014. Three months ago, we wouldn’t have come to that same conclusion.”

Indeed, a number of forecasters are now predicting that the expansion, which began in 2009 and has remained subpar ever since, might prove to be far more durable than the typical five-to-six-year growth cycle, in part because of the absence of the traditional boom, then bust pattern.


In particular, Behravesh and other economists said, the economy has shown greater resilience than expected in the face of tax increases and spending cuts in Washington. As the impact from this fiscal tightening eases, the overall growth rate should pick up.

A number of forecasters are now predicting that the expansion . . . might prove to be far more durable than the typical five-to-six-year growth cycle.

Behravesh now expects the annual growth rate to rise to 2.9 percent in 2014 and 3.5 percent in 2015. If he’s right, it would mark the fastest annual growth since 2005, when the economy expanded by 3.1 percent. It is also well above the 2 percent rise in output the economy has averaged over the last three years.

The nonpartisan Congressional Budget Office also sees relatively fast growth of 3.4 percent next year, and 3.6 percent between 2015 and 2018.

A few other private economists are even more bullish. Jim Glassman, senior economist at JP Morgan Chase’s commercial bank, estimates the economy could expand by 4 percent in both 2014 and 2015. If that were to come to pass, it would be the strongest back-to-back annual growth since the late 1990s.

“I think 2014 will be the real deal,” Glassman said. “If we get to that level, which I feel pretty confident about, economists will say it’s about time.”

Martin Neil Baily, a senior fellow at the Brookings Institution and a former chairman of the Council of Economic Advisers under President Bill Clinton, said he has always been skeptical of Gordon’s long-term view but has recently become more hopeful about the short-term as well.

“I don’t buy the historical wave theory,” he said. “He’s right that there are headwinds like slowing population growth but the tech revolution is still very much happening.”

In terms of the immediate future, “I thought there was a distinct possibility that spending cuts and tax increases might stall the economy,” he said. “I’m more optimistic now because we seem to be weathering it. There is a sense that we are going to get through this.”