The U.S. economy, socked by lofty oil prices and a slowing housing market, will likely be in a holding pattern for the next couple of years with sluggish growth and some softness in the labor market.
Reuters reported that economists say the world’s richest economy is entering this lull plagued by stubbornly high inflation, amid uncertainty over whether higher interest rates are needed to curb price pressures – or lower rates to buffer the economy.
“It might not get much worse, but it’s not going to get much better for quite a while,” said Ken Goldstein, an economist at the New York-based Conference Board. “It’s more like being stuck in a traffic jam.”
He warned that a shock to the economy, such as a surge in energy costs or more turmoil in the Middle East, could make the expansion falter.
A spate of recent data points to sluggish growth ahead and job-market weakening.
The Conference Board said this week its index of leading economic indicators hit the lowest level in nearly a year, suggesting the economy will remain sluggish, with some moderation in business spending and consumers worried about high energy costs and their jobs.
Economists polled by the closely watched Blue Chip Economic Indicators newsletter expect the U.S. economy to expand less than 3% next year.
Consumer spending, which fuels two-thirds of economic growth, has been relatively strong, helped by a six-week decline in oil prices and incentives from automakers.
But an economy that isn’t moving ahead very swiftly is likely to keep consumers on edge, particularly as they see the value of their houses dipping and as businesses slow their hiring pace, economists warn.
“I think it’s fair to say that we are in a lower gear than we were a year ago and the key shifter is housing,” said Carl Tannenbaum, chief economist at LaSalle Bank/ABN Amro in Chicago.