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Economists Don’t See Path To 3% Growth In 2019 (#GotBitcoin?)

Forecasters in survey expect GDP will increase 2.2%, falling short of Trump’s goal. Economists Don’t See Path To 3% Growth In 2019 (#GotBitcoin?)

The Trump administration’s goal of achieving economic growth of 3% or better is looking increasingly remote this year, according to forecasters surveyed by The Wall Street Journal.

Private-sector economists surveyed in recent days expect U.S. gross domestic product to expand an inflation-adjusted 2.2% this year on average, measured from the fourth quarter a year earlier. Forecasters expect economic growth will slow to 1.7% in 2020 and will be 1.9% in 2021.

By contrast, the White House said in July it expected the economy would grow 3.2% this year. It predicted expansions of 3.1% in 2020, and 3% in each of the following four years.

“There’s no visibility to 3% right now,” said Brian Bethune, an economist at Tufts University, citing trade uncertainty, economic weakness in Europe and the 2020 U.S. presidential election.

Year-over-year growth in the fourth quarter of 2018 was 2.5% and 2.8% for 2017. That performance fell short of the 3% growth rate President Trump targeted with his policies of tax cuts, deregulation and a tougher trade stance.

The White House’s 2020 budget projects much stronger growth than many independent forecasters, who see the economy slowing as the effects of fiscal stimulus measures wane. Gross domestic product grew at a 2% annual rate in the second quarter of this year and 3.1% in the first quarter.

The White House said Thursday morning that it stands by its economic growth projections. “Are these the same economists who preached that slow and stagnant growth was the new normal?” spokesman Judd Deere said in an email.

He added that “despite headwinds from severe monetary tightening and a global recession, President Trump’s agenda has created the strongest economy we’ve ever seen,” with robust job creation, rising wages and high consumer confidence.

National Economic Council Director Larry Kudlow said last week that employment growth and productivity gains during the past two years, which he attributed to the administration’s economic policies, have bolstered economic growth.

“The economy’s potential is now moving above 3% for the first time in probably 20 years plus,” he said Friday in an interview with CNBC.

Mr. Trump has attacked Federal Reserve Chairman Jerome Powell and the central bank’s monetary policy in recent months, calling for lower rates to spur the economy. He described the second-quarter growth rate as “not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck.”

On Wednesday, Mr. Trump called for rates below zero for the first time.

Nonetheless, the 3% growth target was based on short-term interest rates rising. In early 2018, the White House predicted that GDP growth in 2019 would be 3.2% and 3.1% in 2020, even as it expected three-month Treasury bill rates would average 2.3% in 2019 and 2.9% in 2020.

The three-month Treasury bill moves closely with the Fed’s benchmark federal-funds rate, which is currently in a range between 2% and 2.25%. The yield on the three-month bill stood at 1.95% on Thursday morning.

In the latest survey, only three economists out of 60 expected the quarterly growth rate to hit 3% or higher at any point this year or next.

Many economists see powerful forces restraining U.S. economic growth, such as an aging population and choppy advances in productivity.

Economists’ expectations in the latest Wall Street Journal survey are broadly in line with those of Fed officials, who expect the economy to grow 2.1% in 2019. They forecast expansion of 2% in 2020 and 1.8% in 2021.

For economists surveyed, the most significant factor creating uncertainty for U.S. businesses and consumers is the trade dispute with China. When asked about the biggest downside risk they see for the economy, 61.5% of economists cited trade, tariffs or exports. They also estimated the likelihood of a recession in the near term was rising. The average probability of a recession in the next 12 months was 34.8% in the September survey, up from 17.7% a year ago.

The Journal’s survey of 60 business, financial and academic economists was conducted Sept. 6-10. Not every forecaster answered every question.

Updated: 11-17-2019

Weak Wage Growth

One Explanation For Weak Wage Growth, Workers’ Reluctance To Switch Jobs

Central banks should monitor job-market churn as a stronger predictor of pay, prices and productivity than unemployment, say some economists.

From London to Washington to Sydney, policy makers are puzzling over why workers’ pay has been rising only slowly even though official unemployment is at its lowest levels in decades.

Now, some economists have a possible answer: Instead of focusing on the number of people without jobs, watch the rate at which workers are switching between jobs.

While unemployment fell quickly after the financial crisis, job-switching rates recovered more slowly and remain lower than in earlier decades.

That is surprising because changing jobs is often lucrative. U.S. workers who switch jobs gain 4% more pay on average than those who stay put, according to recent research by Giuseppe Moscarini, a labor economist at Yale University.

He and other economists say the amount of job-market churn may be a stronger predictor of wages, inflation and productivity than unemployment.

If so, wage growth and inflation could remain soft even as labor markets continue to tighten—especially if the recent sag in global growth weighs on workers’ confidence.

It is a crucial issue for central banks as they figure out how much to cut interest rates to support their softening economies. One of their key economic models, the so-called Phillips curve, predicted inflation would rise as unemployment fell. That hasn’t happened lately. Inflation remains below central banks’ targets across developed economies.

“Central banks should pay more attention to job switching and what it reveals about people’s preferences for the jobs they have,” Mr. Moscarini says.

The argument runs like this: Workers can demand higher wages only if they have outside offers, regardless of the unemployment rate. People who switch jobs tend to find work that better utilizes their skills, and therefore pays more. Job switchers also improve the bargaining position of workers who stay in their jobs, by encouraging employers to pay more to retain them.

The most productive companies are able to pay more to poach workers and expand, while less productive companies shrink. That means increased job-switching tends to boost productivity, or output per hour worked.

“The biggest reason for wage rises is competition, either actual turnover or the threat of turnover,” says Chris Pissarides, a Nobel Prize-winning labor economist. “If we’re observing declining labor turnover, that should have an impact on productivity and wage increases.”

Since peaking after the recession at 10% in October 2009, the U.S. unemployment rate fell 6.5 percentage points to a 50-year-low of 3.5% in September, before edging up to 3.6% last month.

But the rate at which employed workers transition to new jobs has only recently edged toward the levels seen before the 2008 financial crisis, according to data from the U.S. Census Bureau. Some 5.8% of U.S. workers switched jobs in the first three months of 2018, the most recent period available, similar to the level reached in 2006-07, and down from around 7% per quarter in 2000. Job switching fell to as low as 3% per quarter in 2009.

U.S. wage growth firmed much of the past year, with average hourly earnings increasing 3% in October from a year earlier. But annual wage growth remains below the rates of more than 4% seen before the financial crisis, and above 5% in the early 2000s.

For the average U.S. worker, 40% of wage growth over their working lifetime comes from job switching, rather than experience or skills, says Mr. Moscarini.

Researchers at Australia’s Treasury found that a 1 percentage point increase in the rate at which workers switch jobs is associated with a 0.5 percentage-point increase in growth of average wages.

Yet the share of Australian workers who switch jobs in a given year has fallen to around 8% from around 11% in the early 2000s, according to the researchers.

In the U.K., the job-switching rate only recently returned to its precrisis level and remains around 25-30% below its peak in the 1970s and 1980s, according to the Bank of England. U.K. wages are still below their level a decade ago after adjusting for inflation, despite the lowest unemployment rate in around half a century.

The job-switching theory could explain why it has taken so long for inflation to pick up. As workers started changing jobs after the financial crisis, their pay rose. But that generally reflected increased productivity, which doesn’t generate inflation. And switching hasn’t recovered enough to fuel faster inflation.

Why the slowdown in job switching? One important driver, economists say, is workers’ increased caution in the wake of the financial crisis and sweeping changes in the economy, including globalization and new technologies.

Switching jobs is good on average, but risky. New hires may fear they will be the first to be fired in any downturn. Workers may be concerned about switching to fast-growing sectors that require new skills.

An aging population also plays a large role, says Steven Davis, an economist at the University of Chicago.

“Older workers are less geographically mobile and are less likely to quit to take a job or seek employment in new locations,” he says. “Spousal employment, kids, homeownership are among the factors that make older workers less mobile.”

Increased regulation has made the U.S. labor market less fluid, and more like those in Europe, economists say. The share of U.S. jobs requiring a license has risen to 22% in 2018 from around 9% in 1950, according to the Labor Department. That means switching jobs can be more expensive and time-consuming.

If workers are less willing to switch jobs, central banks could press harder on the gas pedal to stimulate the economy without worrying about inflation. And there may be little policy makers can do to influence the job-switching rate except to watch it.



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