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IMF sees weakened growth for U.S. economy - Trade Only Today

IMF sees weakened growth for U.S. economy

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The International Monetary Fund reduced its growth forecast for the United States, saying the economy won’t reach full employment until 2017.

Because of a weak first quarter, the IMF cut its 2014 forecast to 2 percent from the 2.8 percent it predicted in April, Reuters reported on Monday. The IMF kept its 2015 forecast unchanged at 3 percent as job creation picks up after a harsh winter.

"Recent data ... suggest a meaningful rebound in activity is now under way and growth for the remainder of this year and 2015 should well exceed potential," the IMF said.

Yet the country's potential growth should only be about 2 percent going forward, below historical averages, as the population ages and productivity growth slows, it added.

The IMF said its forecasts show the economy will only return to full employment by the end of 2017, with inflation remaining low.

Separately, Brendan Nyhan, a Dartmouth College professor writing in the New York Times, said research shows that consumers can be discouraged from spending by news stories that report the economy is slightly declining as opposed to slightly growing.

He referred to research by two political scientists who found that “consumer confidence and private consumption declined substantially in countries that narrowly experienced two consecutive quarters of negative growth, relative to countries that just missed meeting the definition,” Nyhan said. “These effects appear to be driven by media reporting portraying the country as being in recession, which causes consumers to downgrade their estimates of the state of the economy and adjust their spending accordingly.”

Real U.S. gross domestic product shrank by 1 percent during the first quarter after an initial government estimate that the economy grew by 0.1 percent.

“The key difference is the direction of change,” Nyhan said. “A shrinking economy is far more scary — and newsworthy — than a slow-growing one.”

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