The coming year as a whole is not expected to bring significant relief over 2012. "We expect the recovery to remain lackluster," says Sophia Koropeckyj, managing director of industry economics at Moody's Analytics, a research firm based in West Chester, Pa.
The numbers tell the tale. The most common measure of the nation's economic health is growth in gross domestic product (GDP), the annual total of all goods and services produced in the United States. Moody's expects GDP to increase by 2.4 percent in 2013. That's not much of an improvement over the 2.3 percent anticipated for 2012 when figures are finally tallied.
Moody's forecast might not seem all that bad, given that the GDP increase for an economy in average growth mode is 2.5 percent. But there's a problem: A nation recovering from a recession needs more robust expansion. "By most measures, this recovery is among the weakest in the past 50 years," Koropeckyj says.
What's holding things back? Koropeckyj points to a number of areas. "Fiscal restraint on the local and national level, weaker global demand, a housing market that has hit bottom but has a long way to go to become healthy and weak income growth are all constraining a stronger pickup in employment." Other factors are the weakening economies of China and Europe — both important export markets.
All those factors are coming together to subdue the public mood. "Consumer confidence is still at a level consistent with a recession," says Scott Hoyt, Moody's senior director of consumer economics. "Consumers remain concerned about economic conditions. There is still high unemployment, weak growth in wages, volatile stocks and high gasoline prices. There are a lot of things to keep consumers on edge."
Retail Sales
Retailers will suffer as concerned consumers hold onto their purse strings. "We expect the retail environment to be difficult in 2013, growing at some 2.3 percent," Hoyt says. That pace represents a de-escalation from the 3.2 percent anticipated when 2012 figures are finally tallied. (To put those figures in context, average annual core retail sales grew at 4.6 percent prior to the 2008 financial crisis. Core retail sales exclude volatile revenues from auto sales and gas stations).
Moody's expects pressure on retailers early in the year because of the major weight of a constraining federal fiscal policy. While consumer confidence spiked a little in early fall, consumers will continue to be impacted by the anticipated terminations of two initiatives: the social security payroll tax holiday and extended unemployment insurance benefits. Reduced federal spending, by eliminating some jobs, will also have an indirect but significant effect on consumers.
"Retailers are most concerned about jobs and income," Hoyt says. "The economy is not adding jobs fast enough to lower unemployment. Wage growth remains weak, and it is not putting the cash in the pockets of consumers that retailers would like to see."
Good News
If the economy remains troubled, corporations have managed to thrive. By piling up mountains of cash, they have positioned themselves for a fresh round of capital and labor investment when the time is right. "Businesses are in excellent financial health; their costs are down and they have become highly competitive and profitable," Koropeckyj says. "Employers have little slack in their labor forces so layoffs have declined dramatically."
Other sectors of the economy also show improvement. "Banks have never been as well-capitalized or as liquid," Koropeckyj says. "Households have aggressively worked down their debt burdens and are meeting their obligations more diligently."
And how about housing, that all-important driver of economic health? While still far from robust, it's on the mend. "Residential construction and home sales have been trending up since mid-2011," Koropeckyj says. "Residential construction-related jobs are also slowly creeping up. The months of inventory of new homes are low, having fallen below five months, and existing-home inventories have stabilized around 6.5 months, not far from the normal rate."
Thanks to tightening inventories, housing prices are showing signs of a rebound after a dismal few years, Koropeckyj says. "Other signs of a healthier housing market include a rapid decline in the rental vacancy rate, stabilization in homeowners' equity, and low early-stage mortgage delinquency rates."
Additionally, Koropeckyj says, record low mortgage interest rates and the expansion of the Home Affordable Refinance Program are boosting mortgage refinancing. "That will help to free up household cash to spend on other consumer goods as well as prevent some additional foreclosures."
Continuous growth
Housing, while on the upswing, remains challenged. Most members of the National Association of Homebuilders feel market conditions remain poor. Home construction in general is barely up from a 40-year low. Home sales remain near their 1990s pace. And financing in general remains a problem: "Mortgage lenders are still wary about extending credit," Koropeckyj says. "The high share of homeowners with negative equity also constrains the housing market."
Given the distance still to go for housing, it's apparent that the industry will not play its traditional role of stimulating an economic rebound. "We're not going to see housing lead the way out of recession," says Walter Simson, principal of Chatham, N.J., -based Ventor Consulting. "That's because banks were hurt too badly [by the financial meltdown of 2008] and housing prices were in a bubble. So gains will need to come from other areas."
Other observers see glimmers of sunlight. By the fall of 2013 Moody's expects major market uncertainties to be resolved as lawmakers bridge their differences, raise the Treasury debt ceiling and agree to longer term tax and spending policies. "Combined with the Fed's aggressive actions and a more stable Europe, all of this will ease business fears," Koropeckyj says. "Growth will accelerate and unemployment will begin to fall."
If those are optimistic words, Simson points to another easily overlooked factor: While the economy's growth is disappointing, it is also continuous. The expected 2.4 percent GDP boost in 2013 is, after all, not far off the historic norm. The problem, says Simson, is that we became too accustomed to the rapid escalation of the flush years. "We took the candy high of the real estate and financial bubble and thought such rapid growth was normal."
Maybe an old proverb applies today: Patience will be rewarded. "The current growth rate is not enough to make you jump up and down, but it keeps people off the streets," says Simson. "I see 2013 as good as 2012, and 2014 getting stronger."
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