Viewpoints: US economic challenges
With the eyes of the world on the US presidential election this week, whoever wins will not have long to get comfortable as the country faces many economic challenges.
Here a selection of economists give their opinions on the problems either Barack Obama or Mitt Romney will have to tackle. Viewpoints: US economic challenges
Gary Schlossberg, Wells Capital Management
- Senior economist at institutional money manager Wells Capital Management
- He analyses the economic and investment environment for Wells, which has more than $350bn in assets under management
In the short term the US faces a number of issues. The storm in the US North-East will likely shave a few tenths of a percentage point off fourth-quarter growth, before a reconstruction-related lift sets in early next year.
A stubborn liquidity trap in which lenders are reluctant to lend, borrowers are reluctant to borrow and everyone is reticent about spending the pile of cash on the sidelines, diminishing pent-up demand for big ticket, postponeable items.
The euro debt crisis and the global economic slowdown is affecting US exports, which have become an increasingly important growth engine here, and of course the year-end "fiscal cliff", likely to be whittled down enough to slow but not reverse growth.
Longer term issues include the adverse effect of global competition on hiring and wages, a mismatch in the labour market between skilled labour demand and an overhang of less skilled supply, and market vulnerability to rolling asset "bubbles" in a low-inflation, low-interest environment encouraging a "reach for return" in riskier assets.
What is the fiscal cliff?
- Under a deal reached last year between President Obama and the Republican-controlled Congress, existing stimulus measures - mostly tax cuts - will expire on 1 January 2013
- Obligatory cuts to defence, education and other government spending will then automatically come into force - the "fiscal cliff" - unless Congress acts
- The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession
There is also politically painful pressure for greater economic policy efficiency amid heightened global competition, less ample deficit financing.
Message to Obama: Lower the anti-business rhetoric, which creates business uncertainties undermining the very growth needed to bring unemployment down to a more acceptable level.
More generally, realise that a less regulated, more business friendly policy environment is more important to the kind of job creation that boosts household income and living standards than the other way around.
Message to Romney: Stay focused on the message of growth-oriented tax policies and spending restraint seemingly muddled during the election campaign, avoiding the counter-productive rhetoric (e.g. labelling China a "currency manipulator" on "day one" of your administration) while persevering in the effort to reach across the aisle to achieve bi-partisan compromises - even at the risk of alienating large segments of your party.
Martin Regalia, US Chamber of Commerce
The economy is still stuck in first gear, with the pace of our recovery far too slow to re-employ the millions who remain unemployed or underemployed.
- Chief economist at the US Chamber of Commerce, which represents more than 3 million businesses
- Says politics must not get in the way of addressing the fiscal cliff problem
Our biggest economic challenge at present comes from the fiscal cliff - the combination of historic tax hikes and across-the-board spending cuts that will be triggered on 1 January.
If politics get in the way of addressing it, there will be a very negative effect on our economy. Uncertainty over the potential looming tax increases is already depressing economic activity and Congress should act now to address it.
Congress should also work to address our long-term fiscal problems through entitlement reform and getting our debt and deficits under control.
Message to the new President: The US Chamber has a long track record of successfully working with both parties and we are ready to go to work with whoever wins this election to tackle difficult challenges, get our economy back on track, and put people back to work.
This includes immediate action to address the fiscal cliff and committing to a solid timetable to negotiate long-term solutions to restore our nation's long-term fiscal balance and boost American energy production.
Paul Dales, Capital Economics
- Senior US economist at independent research consultancy Capital Economics
- Says tackling high unemployment levels should be the number one priority
The winner of the election may eventually come to see victory as a poisoned chalice. Whoever is president will struggle to overcome the challenges posed by the persistently weak economy and the dire fiscal situation.
This is especially the case if, as polls suggest, control of the two Houses of Congress remains split between the Republicans and Democrats.
Reducing the unemployment rate, which remains close to 8%, should be the number one priority, but there are no easy policy prescriptions. History tells us that recoveries after financial crises are unusually weak and this one is proving no different.
Message to Obama: He needs to learn from his first term and make a greater effort to reach a bipartisan agreement in Congress on how to put the Federal finances on a more sustainable path.
Message to Romney: He would do well to realise that the policies that can get you into the White House are not always the best ones when you are in it. Cutting taxes excessively would only worsen the fiscal position, while naming China a "currency manipulator" and appointing a more hawkish Federal Reserve chairman would risk undermining the already weak economy.
Lena Komileva, G+ Economics
The effects of Hurricane Sandy on an economy that is still finding its feet from the credit crisis, the approaching fiscal cliff in January 2013 and the potential monetary cliff in January 2014, when the current chairman of the Federal Reserve retires, all pose the challenges of a generation.
- Chief economist and managing director at research and advisory service G+ Economics
- Believes a new sustainable model is needed for the economy
This election is about deciding on a new sustainable model for the economy, with strong governance taking the helm from free markets and globalisation to chart the direction forward.
There is unsettlingly large uncertainty as to whether the US divisive political system can produce an optimal hybrid model of stability, that is the right fiscal model to underwrite short-term growth and the right economic model to underwrite the long-term health of the public finances.
This is a model that will require a new social contract. With income inequality the widest that it has been in two centuries and long-term unemployment the highest since the Great Depression, middle America is squeezed and the economy's long-term regenerative power is weakened as entrepreneurial capital, skills and income stagnate.
Message to Obama: The US economy needs strong leadership and a clear economic vision now more than at any time since the 1936 Roosevelt election.
Message to Romney: American democracy requires strong and socially inclusive economic fundamentals, like income mobility, not economic fundamentalism.
David Semmens, Standard Chartered Bank
- Senior US economist at Standard Chartered Bank
- Thinks cuts should be moderated over the next presidential term
The main challenges that face the US after the election is the orderly resolution of the fiscal cliff. This will swiftly become the market's key focus after the election.
We look for the cuts to be moderated over the coming four years, which will be a firm fiscal contraction.
However we believe that the greater certainty surrounding the path ahead will see businesses feel more reassured and thus increase both their hiring and investment.
The continued passive deleveraging of the consumer will be a restraint on consumption, however broader wage growth will be supportive for earned incomes and will be a key driver of growth.