Expect moderate growth of 2%, led a gradual rise in consumer spending, private-sector investment and more spending by the federal government, at least until the 2011 tax season. That’s what Wells Fargo’s economic group is predicting for the near future of what it describes as a fairly boring recovery.
“I often find myself turning to a thesaurus to find new synonyms for slow,” joked Tim Quinlan, an economist with Wells Fargo in Charlotte, N.C. “But that’s what we’re predicting—slow growth with no double dip.”
Increases in spending will spark more employment, which will in turn lead to more housing starts, an expansion of residential construction and, ultimately, higher inflation. However, Commercial real estate is still experiencing price declines and it’s going to be a while before housing prices pick up, Quinlan said.
How federal policy will shape the recovery is yet to be seen. While the Senate is still up for grabs, Wells expects the House to be majority Republican, leading to less federal and state spending. “The smart bet is that if Republicans are calling the shots, there’ll be less spending,” Quinlan said.
As for when the economy will get back to where it was, Quinlan hopes it doesn’t. “The pace of growth between 2003 and 2007 was unsustainable,” he said. “People were using their homes as ATMs and banks were qualifying people for loans based on their ability to fog a mirror, so I hope we’re not going back to that.”
In terms of a more sustainable recovery, Quinlan said it, as always, depends on spending. Companies have already balanced their balance sheets and have picked up the pace, but consumers, who were too heavily levered before the crash cut their net worths, are still caught in the paradox of thrift, whereby if they save to benefit their personal finances they hurt the economy. “It’s going to take consumers a couple of years before we can start talking about sustainable spending,” Quinlan said.
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