As large changes are in the works regarding the federal fiscal policy, uncertainty is expected to continue, causing a temporary drop in economic growth during the first half of 2013, but a stronger private sector is projected to expand the economy during the second half of the year, according to Bloomberg BNA's annual Economic Outlook.
Specifically, the study finds that the unemployment rate is believed to fall from the four-year low of 7.8 percent to an average of 7.5 percent in the second half of 2013. In the second six months of 2013, an addition of 176,000 new jobs per month is estimated. Besides job creation, business investments, a recovering housing industry and greater consumer spending can help spur the economy. Among private-sector workers, total hourly compensation is anticipated to increase 2.6 percent, up from 2 percent in the third quarter of 2012.
However, an improved economy could be in danger if the Obama administration and congressional Republican leaders fail to reach an agreement regarding the debt ceiling increase and a long-term deficit reduction plan, the study reports.
The study also notes that the Federal Reserve will keep its historically low, near-zero federal funds rate target through the end of 2013 at minimum, and inflation should near the Federal Reserve’s preferred rate of approximately 2 percent.
On the global front, the chance of an escalating crisis in Europe is lower while the recession should end at some point in 2013, the study finds. Downside and upside risks are now more balanced than last year, and growth could be stronger than expected. When it comes to trade volume, it should pick up in 2013 with developing countries leading the way.