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Outlook for US economy remains mixed

Keywords: Tags  MSCI, Federal Reserve, economic growth, William Strauss, Catherine Ngai


CHICAGO — Sluggish growth in the U.S. economy will likely persist in the coming year, although brighter signs are ahead, according to a senior Federal Reserve Bank economist.

"The economy has been expanding, and when you think about what’s been happening in the U.S., it’s sort of good news and bad news," William A. Strauss, senior economist and economic advisor at the Federal Reserve Bank of Chicago, said during the Metals Service Center Institute’s Economic Summit in Schaumburg, Ill. "The U.S. economy is the strongest economy in the world, but the bad news is that it only grew at 1.6 percent in the second quarter vs. the second-quarter basis. It’s also well below the 2-percent trend."

One good sign for the economy is a recent rise in home prices, which had fallen more than 30 percent from their peak in 2006-07.

"One of the successes is that we have seen the housing market starting to improve," he said. "Before, homeowners literally owed more mortgage than what their homes were worth."

The automotive sector has been a bright spot for the metals industry, with some 16 million vehicles sold in August, the best figure since November 2007, he said.

"Overall, it’s been an upside surprise to the industry," Strauss said, but added that total vehicle sales would likely slow after rising 13 percent in 2012. Strauss predicted numbers will rise around 8 percent this year and 3 percent next year.

While the economy looks poised to grow, rates remain lackluster. This year the economy will grow at around 2.4 to 2.5 percent, he said, with growth expected to exceed 3 percent in 2014.

Employment levels are a concern for the ailing U.S. economy, which shed more than 8.7 million jobs from December 2007 to February 2010, and has since recovered some 6.8 million jobs. However, Strauss warned that with new workers entering the labor force every month, coupled with the number of discouraged workers, the U.S. labor market is "far away" from normal.

The plateauing in the industrial sector has also been a concern. While it led the recovery in the first three years after the recession, Strauss said that it’s been flat recently. Looking at the most recent data, year-on-year growth has been 2 percent while manufacturing has historically grown by around 3 percent.

Specifically in steel, capacity utilization has remained at steady but low levels. Steel mills like to operate in the 80- to 90-percent range, and recent numbers show the sector "more than 10 percentage points" lower than that level, Strauss said.

"There’s plenty of room to increase output in the iron and steel sector," he said. "We’ve seen prices that have remained low and declined over the past year."


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