More ho-hum economic growth ahead

July 30, 2013: 3:12 PM ET
NEW YORK (CNNMoney)

The nation's economic growth hasn't been great lately. And that's not likely to change any time soon.

Economists surveyed by CNNMoney are forecasting that growth slowed to 1.2% in the second quarter. That would be even worse than the already modest 1.8% gain in the first three months of the year.

Four of the 18 economists who responded expect growth to fall below 1%, while only two expect it to be faster than the first quarter's anemic gain.

That would make three straight quarters of what most would consider an economy performing below potential, despite a rebounding housing market. Worries about cutbacks in federal spending, known as the sequester, and higher taxes that went into effect at the start of the year are the biggest headwinds for the struggling economy, the survey showed.

"The economy has shown some animal spirits in housing and new car demand, but still faces headwinds, not the least of which is mandated spending cuts," said David Nice of Mesirow Financial.

But the news isn't all bad. The economists think better growth is ahead. For the full year, they expect growth of 2%, despite the sluggish first half, and 3% in 2014.

The report on second quarter growth, which will be released Wednesday, will also be the first to implement a new measure of the U.S. economy. The Commerce Department will now factor in additional services -- such as research and development and the production of artistic properties -- which should increase the size of the entire economy. The expanded methodology will apply to previous quarters, and is not likely to have a major effect on the rate of growth.

Related: Why the housing market could grow even if economy slows

The recovery in the long suffering housing market will be a major driver of better growth ahead. Fueled by record low mortgage rates and a drop in foreclosures, major housing indicators like home prices, home building and home sales have all been rebounding throughout 2013. The recent rise in mortgage rates might slow the pace of recovery, but not enough to kill off the rebound entirely, the economists said. And despite a 12.2% jump in home prices over the last 12 months, few of the respondents are worried about the threat of a new housing bubble.

Schwarzman: Economic recovery is real

"Home prices are recovering at a 'Goldilocks' pace that should enable the sector to extend its recovery out over many years," said Russell Price of Ameriprise Financial. "There is a very healthy dynamic in our view as it should enable the sector to avoid too rapid a rebound and thus the risk of another boom and bust."

The economists are a bit more bullish about Friday's report on job growth. They predict employers added 180,000 jobs in July, down only slightly from the 195,000 gain in June. They expect that to trim the unemployment rate to 7.5% from 7.6% in June.

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