U.S. Economy Forecast To Do Better In 2014

The global economy is expected to grow modestly next year. Morning Edition co-host Steve Inskeep talks to Nariman Behravesh, chief economist of IHS Global Insight about his economic forecast for the year ahead.

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DAVID GREENE, HOST:

The economist Nariman Behravesh puts out an economic forecast every year. And he's predicting the U.S. economy will do better in 2014, which will help both the unemployed and also the long-term unemployed. He spoke to my colleague Steve Inskeep.

STEVE INSKEEP, HOST:

The U.S. unemployment rate has gone down to 7 percent in the year that's just ending. Where is it heading next?

NARIMAN BEHRAVESH: Well, by the end of 2014, it'll probably be down in the low sixes. So we will continue to make headway on the unemployment picture. Part of the problem, though, as you know, is that the labor force participation rate is very low; there are still a lot of discouraged workers. So that low and falling unemployment rate gives a bit of a false picture of the labor markets.

INSKEEP: Now, the number of people who are long-term unemployed, unemployed more than six months, has been going down. But there's still millions of people who are in that category and we're nearing the end of a year in which the United States government is going to cease paying unemployment benefits beyond 26 weeks, which it has for the past several years. How many people is that going to affect in the year ahead?

BEHRAVESH: Well, right now we're looking at about four million people who are classified as long-term unemployed. That's people who are unemployed more than 27 weeks. It has, as you say, been coming down, and it'll probably keep coming down, but you're still looking at four million people who are going to lose some benefits and that's painful. It'll hurt the economy, in the sense that they won't have the money to spend. But the good news is the rolls of the long-term unemployed, as you said, have come down and we think will continue to come down, and in about two or three years, we'll probably be close to where we were again before the recession started in 2008.

INSKEEP: Can I ask about one thing, though? Because one of your forecasts says there will be more upside risk than downside risk for the global economy. What on earth is upside risk?

BEHRAVESH: Upside risk is when we are surprised on the upside in terms of revisions to the growth numbers. For example, U.S. GDP numbers for the third quarter of 2013 keep getting revised upward.

INSKEEP: Things were better than anyone expected.

BEHRAVESH: Exactly. So that's really what we're referring to here, is that as we go through 2014, the revisions to numbers that are released will probably continue to go up. And we will be surprised even when new numbers come out as to how strong they are. This is particularly true for the U.S. To a lesser extent, I would say, in places like Germany and the U.K. but it's certainly going to be a theme we'll see throughout 2014.

INSKEEP: Is there some hope that at the end of this year people might actually be talking about a strong economy rather than a struggling one?

BEHRAVESH: I think the answer is, yes, there will be more hope, there will be more optimism about the economy. And in particular, consumers and businesses I think will be more willing to spend, which will again help to create more jobs and a better mood in terms of the economy. So for the first time we think in three years or so, a lot of the headwinds - you can call them that - facing the U.S. and other parts of the globe - and here we're talking about tightening of fiscal policy, fiscal austerity as it's been called...

INSKEEP: Mm-hmm.

BEHRAVESH: ...or private sector de-leveraging, the need for consumers to cut back on their debt. Those pressures are easing as consumers feel a little bit better about their financial situation and businesses will become more optimistic. So I suspect the level of optimism, whether it's measured by consumer confidence or business confidence, will improve as the year progresses.

INSKEEP: Nariman Behravesh, always a pleasure to talk with you.

BEHRAVESH: Thank you, Steve.

GREENE: Nariman Behravesh is chief economist at IHS Global Insight, a global economic research firm.

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