At a time when analysts have been downgrading their outlooks due to high oil prices and global turmoil, Mark Zandi, chief economist at Moody’s Analytics, says that growth is about to accelerate and the unemployment rate could return to equilibrium by 2014. In his latest U.S. Macro Outlook, Zandi notes that businesses are profitable, household debt burdens are falling fast and bank lending is on the upswing. The number of consumer loans including first mortgages that are between 30 and 90 days delinquent has plunged from 22 million in early 2009 to less than 14 million, the lowest level since the late 1990s. This is lifting a weight from consumer spending, which accounts for 70 percent of GDP. The main obstacle to growth is rising federal government debt, but Zandi believes that policy makers will find a way to cut $4 trillion from the deficit over the next decade, which will reduce the deficit-to-GDP ratio to a sustainable 2 percent. In short, Zandi is suggesting that private sector growth is about to pick up enough to compensate for less spending by the public sector.
There are downside risks, of course. Energy prices remain elevated, the housing market can’t find its footing and small businesses are slow to recover. The financial system could be shaken anew by public debt defaults in the eurozone and in the U.S. if Congress fails to raise the debt ceiling. Then there are concerns overseas: recession in Japan, instability in the Middle East and inflation in China as well as fiscal pressures in the eurozone.
Nevertheless, there is a credible possibility that, after three years of deleveraging, businesses and households have put their financial houses in order, and the government may be able to follow suit, which will set the stage for a stronger phase of the recovery.