On Air Now

Upcoming Shows

Program Schedule »

Listen

Listen Live Now » 1230 AM Sioux Falls, SD 98.1 FM Sioux Falls, SD

Weather

Current Conditions(Sioux Falls,SD 57104)

More Weather »
53° Feels Like: 53°
Wind: SSE 15 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Today

Thunderstorms 69°

Tonight

Thunderstorms Early 60°

Tomorrow

AM Clouds/PM Sun 75°

Alerts

Fiscal policy fight may dampen U.S. economic growth: Reuters poll

The U.S. Capitol is seen against a clear blue sky in Washington May 20, 2013. REUTERS/Kevin Lamarque
The U.S. Capitol is seen against a clear blue sky in Washington May 20, 2013. REUTERS/Kevin Lamarque

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. economic growth this quarter is likely to be less robust than forecast last month given the erosion of confidence in the wake of the nasty fight over fiscal policy, a Reuters survey showed on Thursday.

The fourth quarter had been expected to mark the transition to a stronger pace of expansion. But economists have grown less optimistic after the budget tussle that shut down parts of the government and left the nation flirting with a historic debt default.

"The insanity in Washington is affecting consumer and business confidence. That's the huge restraint to growth," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The survey of over 70 economists taken from October 11 right up until Wednesday, when a last-minute deal ended the budget standoff, forecast GDP growth at a 2.3 percent annualized rate in the October-December quarter.

While that was only marginally lower than the 2.5 percent economists had estimated in September, the risk is high that growth could come in even lower since the shutdown of the federal government lasted longer than the one week that many economists had expected.

The shutdown, which started on October 1, was estimated to chip away around 0.3 percentage point from annualized fourth-quarter gross domestic product.

The government is expected to reopen soon, after the U.S. Congress approved an 11th-hour deal to temporarily fund the government and raise the country's borrowing authority until February 7.

Growth for the first quarter of 2014 is seen at a 2.6 percent pace, unchanged from last month's survey. Some economists, however, say this forecast is optimistic given that the fiscal policy tension in Washington remains unresolved.

"The damage has been done, political wrangling will continue, and the Fed is likely to delay its tapering plans," said Jan von Gerich, strategist at Nordea.

Concerns about the economy's near-term outlook suggest the Federal Reserve will not be in a hurry to start scaling back its massive monetary stimulus.

The U.S. central bank surprised markets last month by saying it would continue its monthly $85 billion bond purchases, and the consensus was then for a move in December.

Now, 45 of 72 economists said the Fed would only scale back its stimulus in the first quarter of next year, with another three saying they will wait until the second quarter. Twenty-four still expect the Fed to taper by the end of this year.

"It takes tapering off the table this year," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania. "They will not have to revisit (the debt ceiling) until February. That delays the tapering until March. The Fed is not going to take any chances."

WEAKER JOBS GROWTH AS A RESULT

The economy will take a direct hit this quarter from the shutdown through the loss of output from the federal government, which makes up 7.5 percent of GDP.

It has been a drag on growth since the fourth quarter of 2010, with the exception of only two quarters.

Yet despite its small size in the economy, a sharp drop in government spending resulted in growth stalling in the last three months of 2012.

The closure of the government will also have an impact on consumer spending. Hundreds of thousands of federal workers were furloughed during the closure.

While these workers will have their salaries paid retroactively, their counterparts in the private sector will not. That will hurt already weak income growth and put a damper on what has so far been sluggish consumer spending.

And the shutdown has already dented confidence. The Thomson Reuters/University of Michigan index of consumer sentiment hit a nine month low in early October, a worrying sign ahead of what is shaping out to be lackluster holiday shopping season.

A survey by the National Retail Federation this week showed Americans, concerned but the economy and the uncertainty over the government budget, were taking a conservative approach to holiday shopping. Spending on gifts and holiday decor this year was expected to be two percent less than in 2012.

Separately, the New York Federal Reserve's general business conditions index, which gauges factory activity in New York state, touched a five month trough in October.

"The recovery is on hold for another four months," said Gennadiy Goldberg, an economist at TD Securities in New York, citing the unresolved differences in Washington over the government budget.

"Hiring and investment decisions that have been plagued by political uncertainty will persist, and the hoped-for shift higher in economic momentum will be delayed."

The median forecast for non-farm payroll growth is to average 151,000 a month in the third quarter, followed by 175,000 in the current quarter. Those mark the lowest expectations for these periods in a year.

(Additional reporting by Swati Chaturvedi in Bangalore; Analysis and polling by Sarbani Haldar and Rahul Karunakar; Editing by Ross Finley and Hugh Lawson)

Comments