The International Monetary Fund has cut its 2014 growth forecast for the United States, citing a harsh winter and still-struggling housing market, though the organization said a meaningful rebound is underway and growth should continue for the rest of this year.
For 2014, the IMF now projects gross domestic product growth of 2%, down sharply from the April projection of 2.8%. The projected GDP growth target of 3% for 2015 was left unchanged, suggesting the woes during the first quarter were seen as a blip.
“Our key message is that we see this as temporary, and we see numbers going forward as being a lot stronger and trending toward 3% [growth],” IMF Managing Director Christine Lagarde said during a press conference.
Lagarde said the problems in the first quarter will be mitigated by “strong growth” in the second and third quarter, and potentially the fourth quarter. She said the economy still faces major issues, including an aging population and low productivity.
“It tells us another thing … extreme weather occurrences have a serious effect on the economy,” Lagarde said. She said weather-related issues have occurred more in the past 20 years than in the past century, further hinting that trend raises questions about climate change.
The U.S. has consistently added jobs and many metrics indicate the economy is strengthening, though long-term unemployment remains high and labor force participation and stagnant wages are also problematic. Though the U.S. should see steady progress in job creation, the IMF said, the unemployment rate isn’t expected to tick down drastically. The IMF sees unemployment at 6.2% for this year, falling to only 5.9% for 2015.
The IMF said potential GPD growth is projected to average about 2% for the next several y ears, below both historic averages. The IMF advised the U.S. take immediate steps to raise productivity and increase labor force participation. The organization said such measures should involve investments in infrastructure and education, improving the tax system, and potential immigration reform.
The IMF also advised the Federal Reserve, which has made some efforts to increase transparency, boost communication to temper market volatility as it explains its decisions on future policy rates. One way the Fed could better communicate would be to publish a quarterly monetary policy report, the IMF said, which could convey more detail about the majority and dissenting views of the Federal Open Market Committee regarding outlook and policies. The FOMC is the Federal Reserve’s policy-setting panel.