Phil Castle, The Business Times
Craig Hakkio expects the United States economy to continue to grow rather dip back into recession.
But recovery likely will remain slow. And it could take a long time to regain what was lost in the aftermath of a housing bust and financial crisis, said Hakkio, a special advisor on economic policy at the Federal Reserve Bank of Kansas City.
One of two economists to speak at a Grand Junction forum hosted by the bank, Hakkio said the outlook for the national economy is one of modest and slow recovery.
The U.S. economy typically rebounds quickly after a recession, regaining what was lost within one to three quarters. The latest recovery is likely to take far longer, however, Hakkio said, with 2 percent to
3 percent growth in gross domestic product, the measure of goods and services produced in the country.
The labor market likely will be similarly slow to recover since meager monthly payroll gains aren’t yet enough to substantially curb unemployment rates, he said. The jobless rate is projected to remain at 9 percent until 2013 before falling to 6 percent by 2017.
The private sector lost 8.8 million jobs in the recession and since has regained about 2.6 million jobs, Hakkio said. That leaves 6.2 million jobs that must be created to regain what was lost, he said.
The slow recovery defies what Hakkio said have been “extraordinary” efforts by the Federal Reserve to stimulate the economy, including lowering a key short-term interest rate to 0 percent to 0.25 percent. “Once you’re at zero, you can’t go any lower.”
Recovery remains slow in part because the housing industry has yet to recover from a bust and contribute to growth, Hakkio said. Moreover, economic recoveries tend to take longer following financial crises.
The recovery faces other challenges as well, including the potential effects of the European debt crises on the global financial market. A default in Greece and other European countries would be felt in the United States, Hakkio said.
Long-term problems persist, too, including an aging population in the U.S. relative to the number of younger people in the work force and the implications for Social Security, Medicare and other government benefits programs.
The potential costs of Social Security, Medicare and other programs over the next 75 years far exceed the projected revenues to fund those programs, he said. “This is a very large unfunded liability.”
Growth in federal government spending is similarly unsustainable, Hakkio said.