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Martin Feldstein: Economic Growth Won’t Continue in ‘Tough Year’

Wednesday, 29 Feb 2012 10:13 AM

The U.S. economy grew 3 percent in the fourth quarter of 2011, faster than expected although don't expect such pleasant surprises to continue in 2012, says Harvard economist Martin Feldstein.

"My personal view is that we're not going to see the kind of 3 percent GDP growth that some people are calling for. I think we'll be lucky if we have 2 percent," Feldstein tells CNBC.

"There are strong headwinds. It's going to be hard to maintain exports," said Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan.

Editor's Note:Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

"Consumption got boosted last year because people cut their saving rate sharply. I don't think that's going to happen again. We've got higher oil prices, so it's going to be a tough year."

The country should consider itself lucky if it breaks 2 percent growth in 2012.

"Being under 2 percent, which is where we were last year, I think is more likely then higher rates," Feldstein says.

The Federal Reserve has said that interest rates will likely stay low through 2014, which suggests the economy will not come roaring back anytime soon.

Unemployment rates currently stand at 8.3 percent, figures that Feldstein and many others say don't reflect the true weakness of the labor market in that those who give up searching for jobs are not factored into that number.

Students graduating from school who put off looking for work aren't counted either.

"The unemployment rate has come down by more than a full percentage point. But about half of that is because people have stopped looking for work or haven't even started looking for work," Feldstein says.

"So we haven't seen the improvements in the labor market that the unemployment rate suggests."

The one bright spot is that a weak economy means inflation rates will remain under control.

"I don't see any short-term inflation problems. By short-term, I mean this year, next year. It's hard to believe that in this economy, we're going to see significant inflation problems."

Some point out that the economy is likely stuck in a depression, which is marked by recessions followed by periods of weak growth that dip back into recession again.

Credit booms and busts as well as extended periods of deleveraging mark depressions.

A typical recession not associated with depression is normally marked by a short contraction and then a pronounced rebound.

Corrections in the business cycle tend to mark these garden-variety recessions.

"The Great Depression featured a double-dip of its own. Within the start and end dates of the Great Depression, there were two recessions, 1929 to 1933, and 1937 to 1938," James Rickards, a hedge fund manager and the author of "Currency Wars: The Making of the Next Global Crisis," writes in a U.S. News & World Report column.

"Recessions inside a depression are completely different phenomena than typical business and credit cycle recessions. They are the result of behavioral shifts in a larger wave of deflation and deleveraging," Rickards says.

Editor's Note:Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

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2012-13-29
Wednesday, 29 Feb 2012 10:13 AM
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