Key to Economic Growth? More Business Confidence, by Cushman & Wakefield
The U.S. economy is growing, but what it needs to improve more quickly is greater confidence on the part of the business sector, according to a new research report by Cushman & Wakefield titled U.S. Economic Update: Ready for Growth. The report asserted that once businesses are more confident, investment spending will accelerate, as will hiring. That would help the economy accelerate from today’s 1.5 to 2 percent GDP growth rate to around 3 to 3.5 percent.
The key to improving business confidence is likely to be the resolution of the second part of the “fiscal cliff” in the October/November time frame. If Congress and the Administration can put the U.S. on a more sustainable deficit trajectory, or at the very least provide some clarity about tax and spending policy, it will go a long way toward improving confidence and spending by businesses.
The Cushman & Wakefield spotlighted the following areas as having most impact on business confidence:
Housing. A critical component of the economic outlook is the state of the housing sector. Historically, the housing sector led the economy out of recession. However, because the 2007-2009 recession began when the housing bubble burst, the housing sector has lagged. In addition, the steep declines in home prices in many areas of the country have dampened consumer spending because households have seen their wealth fall. It has been about eight years since the housing market reached a peak in mid-2005, and the U.S. is finally seeing some positive economic impact from housing.
Pent-Up Demand. The average age of a car in the U.S. today is 11.3 years, the highest it has ever been. During the recession and sluggish recovery, households have been postponing purchases of durable goods as long as possible, but eventually they can no longer repair and they have to replace. The longer the economy is weak, the more pent-up demand for durable goods builds up.
Energy and Technology. Two sectors of the economy are already booming: energy and technology. The revolution in shale oil extraction has increased U.S. oil production to its highest level since 1989 and is up more than 20 percent over the past year. This energy boom is creating jobs in the sector and having a major impact on cities like Houston, Dallas and Denver.
Fiscal Policy. Last year, it was the election that caused businesses to be cautious. After the election was over, Congress and the Administration had to deal with the “fiscal cliff” — the automatic spending reductions and tax increases they approved in 2011 as the blunt instrument that would force negotiations over a long-term solution to the budget deficit. When they couldn’t agree on a comprehensive package, the fiscal cliff was enacted and the budget deficit fell. However, the deadline still looms and that worries business people.
Global Uncertainty. Outside the U.S., the economic and political environment is changing. Countries in the developing world, particularly China, have slowed in the past year. Recently, there have been signs of a pick-up in economic activity that could support stronger growth.
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