What most economists would agree on is that de facto policies, which range from political gridlock and kicking the can down the road to the federal spending sequester, have slowed growth. According to our model of the U.S. economy, the sequester will cut GDP growth by half a percentage point in 2013.
The labor market is still in bad shape. However, it is improving, and we are more than halfway over the hump. Here is a sketch of how we expect the rest of the recovery to unfold. In the third quarter of this year, real per capita GDP will hit its previous peak last reached at the end of 2007. In the third quarter of 2014, payroll employment will reach its previous peak of January 2008. In late 2015, the unemployment rate will drop below 6.5 percent, and the Fed will start raising interest rates.
And in 2018, the jobless rate will drop below 5.5 percent — full employment, at last.
Patrick Newport is director of long-term forecasting at IHS Inc. in Lexington, Mass.