Economy projected to remain sluggish in 2013

Economic conditions in the U.S. aren’t expected to improve dramatically anytime soon.

Dan Grant

Published: Oct 29, 2012

Kevin Kliesen, business economist at the Federal Reserve Bank of St. Louis, last week projected economic growth will remain sluggish in 2013 and possibly into 2014.

“The economy continues to improve,” Kliesen said last week at the Doane ag outlook conference in St. Louis. “But the gains continue to be fairly lackluster.”

The gross domestic product (GDP) increased by 1.3 percent in the second quarter. It is projected to increase 1.7 percent in the third quarter, 1.8 percent in the fourth quarter, and 1.7 percent in the first quarter of 2013, Kliesen reported.

Should those gains occur, the GDP would post increases in at least 14 consecutive quarters. However, the gains are well below the historic average annual increases of 3.25 percent.

“I expect the sluggish economy to persist in 2013,” Kliesen said.

High oil and food prices could continue to weigh on the economy. Oil prices next year are expected to average more than $90 per barrel while USDA projected food prices in 2013 could increase by 3 to 4 percent.

Elsewhere, GDP growth in China could ease from 9 percent to 7.5 percent while the forecast in Europe called for less than a half percent growth in GDP next year compared to a half percent decline this year.

“That tends to put a damper on the outlook for exports,” Kliesen said.

The economy also is expected to be restrained by a high unemployment rate that was projected to average 8.1 percent this year, 7.8 percent next year, and 7 percent in 2014.

The typical unemployment rate in “normal” economic conditions previously was 5 percent to 5.5 percent. Kliesen said the new normal unemployment rate could be 6 percent.

The farm economy has been strong due to high commodity prices, but Kliesen noted the drought caused many ag bankers to temper their outlook for farm income this year compared to last year.

Elsewhere, the Federal Reserve Bank of Chicago reported the drought isn’t expected to put downward pressure on farmland prices. But the market was projected to level off.

The value of good farmland in Illinois in the second quarter increased just 1 percent compared to a 15 percent rise the past year.

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