Higher payroll taxes should “take some of the steam” out of consumer spending in the first part of the year, but 2013 is expected to gain momentum heading into next year, said Jay Bryson, managing director and global economist at Wells Fargo.
The Lancaster County native was once again the keynote speaker at the annual economic forecast breakfast hosted today by the Harrisburg Regional Chamber and Capital Region Economic Development Corp.
"We think (economic) expansion will continue," he said of 2013.
But don't expect a full recovery as the economy continues to heal, he said. As he did last year, Bryson projected slow but steady growth.
"I think it's an OK year," he said, comparing the current state of recovery to the sixth or seventh inning of a baseball game.
The economic metric to watch is purchasing power, Bryson said, which is growing about 2 percent annually.
If labor growth remains constrained — the U.S. has added about 150,000 jobs per month — that purchasing power probably remains somewhat subdued, he said, which means slow growth on consumer spending.
Consumers are still hesitant to take on new debt, he said, as household balance sheets continue to have some holes.
"Housing prices are not back yet," Bryson said.
However, Bryson said 1 million new housing starts are projected for the year. That would be a 20 to 25 percent increase, he said. That's "soft" by industry standards, he said, citing a norm of 1.25 million to 1.5 million starts annually.
"We've been below that for six years," he said.
Interest rates should continue to remain at historic lows, unless gross domestic product grows exponentially or unemployment falls significantly, he said.
The Harrisburg region continues to be held back somewhat due to government cutbacks, Bryson said. Driven by education, health care and professional and business services, the area added about 1 percent to its job base over the year, he said.
The "game changers" could be spikes in oil prices because of uncertainty in the Middle East or a terrorist attack, Bryson said.
The European debt crisis, which is a source of instability in the global financial markets, also could spark another U.S. recession.
Our own fiscal situation — massive federal spending cuts — or foreign investors dumping bonds, which could send borrowing costs up, are other potential risks, he said.
Business spending remains positive, though it is not expected to ramp up much, he added.