Putting America’s Recovery to Work
The US economy grew much more quickly than expected last year, and the recovery is set to strengthen further this year. But, as long as significant slack in the labor market remains, most workers will not share in the gains of accelerating growth.
BERKELEY – America’s economy grew much more rapidly than expected in 2013 and appears poised to strengthen further this year. But there is still considerable slack in the labor market, and, as long as it persists, the gains from faster growth will continue to be concentrated at the top of the income distribution, as they have been throughout the recovery.
According to recent BEA estimates, real (inflation-adjusted) GDP grew at a 2.7% average annual rate in 2013, compared to only 2% in 2012. Most forecasters – including the nonpartisan Congressional Budget Office, the so-called Blue Chip consensus, and the Federal Reserve – predict that annual real growth will reach at least 2.8% in 2014.
Despite two recent lackluster employment reports, there are many reasons to expect that growth will accelerate in 2014. The headwinds buffeting the US recovery – impaired household balance sheets, a depressed housing market, and government spending and employment cuts – are dissipating. Household debt has fallen to levels last seen in the early 1990’s, real household net worth has returned to its pre-recession peak, and residential investment as a share of GDP is rising.