Before 2013 started, experts had all but written off the first half of this year for economic growth.
Forecasts for job growth and economic output were dimmed by the prospects of automatic federal government budget cuts known as sequestration and the “fiscal cliff.” The so-called fiscal cliff was the roughly $600 billion of tax increases and budget cuts set to take effect at the end of 2012 and early 2013.
These major headwinds slowing down the economy are reflective of the stop-and-go recovery struggling to run on all gears since 2009.
Now halfway through 2013, here’s the good news: the economy didn’t perform as bad as expected from January through June.
“In a lot of ways we kind of did write off the first half of the year,” said Mekael Teshome, economist for The PNC Financial Services Group Inc. “It turns out the economy has been more resilient than anticipated. It’s not that things weren’t slow the first half of the year, but consumers, for example, held up much better.”
Sequestration overall hasn’t really taken as big a bite out of growth as was feared, he said.
The thought was tax increases would decrease the amount of money in people’s pockets to spend and make people save more.
“It turns out we did have lower gas prices than we did a year ago,” which helped offset tax increases, Teshome said.
There’s also continued job growth. The national economy has added an average 202,000 jobs a month for the past six months, up from 180,000 in the previous six, based on the most recent U.S. jobs report released July 5.
“People with existing jobs aren’t getting big raises, but the more people with jobs means more people can spend,” he said.
However, the bad news is that because the economy performed better the first part of 2013 than previously predicted, things won’t feel much different going forward than they do now for consumers.
“For the average person, it will feel about the same; just steady improvement in the labor market,” Teshome added.
Key factors driving economic growth are the rebounding housing market, the trend of “reshoring” manufacturing jobs back to American soil, a booming U.S. energy sector and a brighter global economic picture, says Jeff Korzenik, chief investment strategist for Fifth Third.
In Clark County, 1,122 homes sold in 2012 compared to 944 homes sold in 2011, according to Western Regional Information Systems & Technology Inc. WRIST houses the area’s Multiple Listing Service for real estate agents to record residential sales and listings.
The Clark County average sales price went from $95,354 in 2011 to $93,932 in 2012.
“The gains in housing continue, and it’s a virtuous cycle,” Korzenik, the Fifth Third investment expert, said.
“More people are finding jobs as we have payroll gains. That means … continued low mortgage rates on housing affordability is very high. We’re seeing people purchase homes. We’re seeing that improve the price of homes,” he said. “That makes lenders more willing to lend to buyers and we’re getting a lot of positive feedback in the housing market, so that will continue.”
The lagging statistic in the economy’s big picture is job growth.
Revised numbers show employment levels from December 2011 to December 2012 in Clark County rose by 600 jobs.
The number of Clark County people employed as of the end of 2011 was 49,300. As of the end of 2012, county employment was 49,900, up about 1 percent from the year before. Pre-crisis, 53,200 Clark County people were employed in December 2006, according to figures from Ohio Department of Job and Family Services.
“I think one of the big differences with past cycles is how many long-term unemployed we have. The average duration of unemployment in the U.S. is still around 36 weeks, which is extraordinarily high. So when people lost their job, it’s very hard for them to get back in the work force,” Korzenik said.
In past recessions since World War II, the average length of unemployment was 15 to 20 weeks, he said.
“The other factor is because we have such still high levels of unemployment, we are far from that magic number of 6 percent unemployment. And 6 percent unemployment historically is very important because when you get unemployment below 6 percent, you start to get wage growth,” he said. “We don’t have a lot of upward wage growth, so even though people are getting back to jobs, we don’t see the paycheck or workers increasing in any significant way.”
Going into the second half of 2013, PNC economists expect “persistent moderate growth.”
“We’re looking at a little over 2 percent GDP (Gross Domestic Product) growth for the third and fourth quarters,” Teshome, of PNC, said. “That’s not spectacular and it’s not bad either.”
By comparison, U.S. GDP grew at an annual rate of 1.8 percent in the first quarter 2013, according to the U.S. Bureau of Economic Analysis. Real GDP estimates the value of goods and services produced in the U.S. adjusted for inflation. As of the end of March, the dollar value of goods and services made in the U.S. was $15.98 trillion, according to government estimates.
The U.S. economy grew 2.2 percent in 2012, according to the federal agency’s revised estimates, the same as Ohio’s economy. Ohio’s economic output last year was $435 billion.
U.S. GDP actually recouped its losses from the recession by the end of 2011, according to government figures.
“We’ve climbed out of the hole in terms of production. It’s employment that’s still lagging,” Teshome said.
The Associated Press contributed to this report.