Harvard’s Feldstein: Economy Will Struggle to Sustain 'Any Kind of Serious Growth'

Friday, 05 Apr 2013 01:57 PM

By Glenn J. Kalinoski

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The economy will struggle to post any type of “serious growth” this year amid dismal data such as Friday's jobs report, Martin Feldstein, Harvard University economics professor warned.

He also said investors need to look beyond the headline number contained in the March U.S. payrolls data that featured job creation well below projections.

“They are just very, very bad,” Feldstein told CNBC. “It’s not just that the payroll gain was 88,000, but the very sharp decline in the labor force participation rate. This is a very weak labor market.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

U.S. companies hired at the slowest pace in nine months, a sign Washington's austerity push could be taking momentum from the economy, Reuters reported. The economy gained 88,000 nonfarm jobs as the unemployment rate fell one-tenth of a percentage point to 7.6 percent largely due to people dropping out of the work force, Labor Department data showed.

Economists polled by Reuters had forecast a gain of 200,000.

Analysts believed some of the weakness was due to tax hikes enacted in January. While retail sales data hadn’t shown a big impact earlier in the year, retailers cut staff in March by 24,100.

“From the fourth quarter of last year to the fourth quarter of this year, we will be lucky if we have 2 percent growth this year,” said Feldstein. “We’re starting off pretty badly. The first quarter doesn’t look all that good. With this kind of weakness in employment, it’s going to be very hard to keep up any kind of serious growth.”

Feldstein went on to mention that the economy will be hurt by the sequester and increased taxes. "This is going to be a tough year to get back to even 2 percent real GDP growth.”

Regarding the Federal Reserve’s near-zero interest rates, Feldstein said the central bank is “trying very hard, but not doing very much.”

“It is boosting the stock market in order to raise consumer spending, contributed a few tenths of a percent each year … but it is not enough to generate the growth we need – 3 percent, 4 percent real GDP growth. Housing is picking up, but again, it’s not enough."

Feldstein isn't convinced the Fed's policy of quantitative easing should continue.

“The gain that they’re getting is very small, if at all anymore, and the risk is they’re building up this very large bubble in which asset prices are way out of line,” he said. "The stock market [is] kept artificially high by virtue of that, so I think they’re taking big risks once again.”

Other experts are also warning about U.S. economic growth.

Pacific Investment Management Co.’s Bill Gross said the economy won’t expand more than 2 percent this year, Bloomberg News reported.

“A 2 percent ‘new normal’ economy is the best we can expect,” Gross told Bloomberg News in a radio interview with Tom Keene. “The sun isn’t going down, but there’s certainly an element of dusk to it.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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