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Spring Swoon

12:00 AM, Apr 27, 2013 • By IRWIN M. STELZER
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All of which has produced the talk of another “spring swoon.” Economists at the International Monetary Fund, in the latest iteration of their forecasts, are now guessing that the U.S. economy will not even achieve a 2 percent growth rate this year: 3 percent will have to wait until 2014. The IMF, led by managing director Christine Lagarde, has launched an attack on austerity, a fiscal tightening that is creating real problems in the eurozone. So it’s lowering of the outlook for the U.S. economy reflects its view that  America is “tightening … policies at a pace that is too strong.” That fits nicely with the Obama plea for more another round of infrastructure spending but, says American Enterprise Institute economist John Makin, the IMF analysis “is badly muddled.”   

But be of good cheer, or at least better cheer. The consensus among economists here is that IMF bunch and other swoon-mongers have it wrong. A panel of economists regularly surveyed by the Wall Street Journal is predicting that the economy will grow this year at a 2.5 percent rate, sustaining the first quarter pace, rather than swooning. That would bring full-year 2013 growth to the fastest pace since 2005, despite the fiscal tightening that is resulting from the combination of tax increases and spending cuts. The panel then expects the rate of growth to accelerate to 2.9 percent and then to 3 percent in the following two years.

My own sense is that the home-town boys have a better chance of being right than do the IMF economists. The revolution in energy availability and low natural gas prices resulting from fracking technology are attracting manufacturing businesses to the U.S. and, although that sector will never be as large as it once was, it will likely no longer exert a major downward pull on economic growth. The auto boom seems certain to continue as consumers, scrimping on other things, continue to replace their ageing vehicles with newer, more efficient, more technologically advanced cars and trucks.

And the housing recovery proceeds apace. My admittedly unscientific survey of property agents indicates that the March fall in sales of existing homes was due more to a lack of inventory of homes to sell than to demand for these homes. In response to the lack of inventory, home builders are scrambling to augment supply: newly built homes for sale jumped in March to the highest level since late 2011. And sales of new homes in March were up 18.5 percent over year-earlier levels, with prices up 3 percent in March alone by one reckoning. Home builders are complaining of difficulty in hiring skilled construction workers, and of rising costs of building materials and land—hardly signs of inadequate demand. 

With Federal Reserve Board chairman Ben Bernanke and his colleagues administering the smelling salts of record-low interest rates, autos and houses should help the economy to snap out of its swoon.

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