OECD sees US growth accelerating through 2015

The U.S. economic recovery should accelerate in the coming months as an energy boom, steadily falling unemployment and a rebound in investment and consumer confidence push growth to its fastest pace in a decade, the Organization for Economic Cooperation and Development (OECD) said Friday.

In its latest overview of the U.S. economy (PDF), the Paris-based group said U.S. gross domestic product would expand 2.5 percent this year, a touch below a forecast it released last month.

But it maintained its 3.5 percent growth projection for next year, which would be the strongest advance since 2004.

Despite stronger growth, the group forecasts that the unemployment rate would decline slowly, remaining at 6 percent at the end of 2015 — still above the level typically regarded as full employment. The jobless rate held at 6.3 percent in May.

And while overall unemployment has decreased, large-scale underemployment — people working in low-paying or part-time jobs or in jobs that do not require a college degree — remains a problem. Underemployment is not included in the official unemployment rating. 

According to the Center for Economy Policy and Research (CEPR), nearly 35 percent of all college graduates are underemployed, though that number is significantly higher for minorities, particularly African-Americans, who have a 55.9 percent rate of underemployment.

Minorities are also unemployed at higher levels. The same CEPR study shows, for example, that African-Americans have nearly double the national unemployment rate, at 13.4 percent.

The OECD is more optimistic on U.S. growth than most private forecasters and some other international organizations, including the World Bank, which expects growth in 2015 to be only 3.0 percent.

The OECD said it saw several positive trends converging to make the recovery faster, more entrenched and more driven by private demand.

Low energy prices and continued low borrowing costs, coupled with record corporate stockpiles of cash, should produce a surge of 10 percent in business investment in 2015, the OECD projected, while steadily falling unemployment would mean rising consumer demand and a firm recovery in housing over the next year.

"The U.S. is the bright spot in the world's recovery today," said OECD head Angel Gurria. "This has been building up," as the United States worked through the aftermath of the crisis and recession and set the stage for domestic demand and investment to take off.

"The U.S. is the one country that has its own growth built in."

Notably, the OECD said that the steps taken to rein in federal spending and debt in recent years are working. The drag on the economy from budget cuts has diminished, while federal debt as a percentage of GDP is stabilizing at about 106 percent — high by world standards but perhaps set to decline.

The OECD, an economic policy organization that includes the world's largest developed nations, did warn that some trends in labor markets could hurt the country's prospects.

The continued stagnation of wages among middle- and lower-income families has stunted demand and worsened income inequality, the OECD said. It called for tax law changes and an increase in the minimum wage to address the issue.

Declining labor force participation also poses a problem, which the OECD said could be addressed through reform of immigration laws, or employee tax and training programs that encourage people to work. It recommended specifically a broadening of the Earned Income Tax Credit (EITC), a refundable tax credit for lower-income working individuals or couples. The EITC is particularly helpful for people with children, because the amount of the benefit is based on the number of children or dependents in an individual’s or couple’s home.

The OECD said the United States should also cut its 39.1 percent corporate tax rate, the highest among OECD countries, and reform the system to broaden the base of corporations paying taxes and to give businesses less incentive to book profits abroad. According to a report from the PIRG Education Fund for Citizens and Tax Justice, 70 percent of Fortune 500 companies take advantage of tax loopholes and operate subsidiary companies in offshore tax havens, which allow them not to pay taxes on their profits. For this reason, the federal government loses $90 billion in missed tax revenue, the report said.

Al Jazeera and Reuters