Academic journal article ABA Banking Journal

Speed Bumps; No Double Dip

Academic journal article ABA Banking Journal

Speed Bumps; No Double Dip

Article excerpt

Bank economist Stuart Hoffman calls the current situation a "half-speed recovery," and he and his colleagues on the ABA Economic Advisory Committee expect things to continue at that speed through 2011.


Speaking at the press briefing last month announcing the EAC's twice-yearly economic forecast, Hoffman, the group's chairman, and chief economist of PNC Financial Services Group, said the recovery was constrained by several "speed bumps." He identified these as weakness in the commercial real estate market, state and local government budget problems, weak consumer spending, the prospect of tax hikes in 2011, and global economic turmoil. On the plus side, private-sector employment is growing, consumer spending has returned--albeit moderately, and business capital spending is strong.

The committee's consensus forecast is for real GDP to grow at just over a 3% annual pace through 2011, well below the usual post-recession pace.

"The economy is moving ahead in a lengthy rehab process," said Hoffman in a prepared statement. "This involves transitioning from monetary and fiscal stimulus to a self-sustaining recovery in the private sector." Private-sector employment is crucial for sustaining expansion, he noted. "People are reluctant to spend when they are concerned about their jobs and their incomes."

Right now, he said, people want to spend some, save some, and continue to deleverage. If income doesn't grow, however, they can't do all three. But because income is growing, the committee is forecasting a moderate 3% increase in consumer spending this year and next. …

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