Morgan Stanley’s North America economics team continues to see a “sluggish pace” of growth in economic activity throughout the year and also sees risk in slowing in 2013 due to fiscal tightening. However, they got slightly more optimistic about 2013.”We still look for +2.25% GDP growth over the four quarters of 2012, and we slightly lifted our 2013 forecast to +2%.”
However, they are noticing an unusual decline in productivity based on the fact that hiring has picked up. This raises some concerns.
From their note:
The recent divergence between the GDP arithmetic and labour demand is unusual – but not unheard of. Most importantly, this combination implies a significant slowdown in productivity, which is somewhat troublesome given the subpar productivity performance that was already evident in 2011 (see Exhibit 2). A continuation of these trends would imply a significant deterioration in corporate profitability at some point in the not too distant future.
For now, they’re not too worried.
However, we suspect that an eventual moderation in employment growth will help to reconcile things. In fact, we suspect that unusually mild weather across much of the nation has been helping to boost job growth.
They eventually expect a “payback in the job tally” over the spring months, which should get productivity and corporate profitability back in line. A “payback in the job tally” is a nice way of saying job cuts.
Here’s a chart from Morgan Stanley.
Photo: Morgan Stanley
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