'New normal' may be same as the old one: Steady growth

The "new normal" U.S. economy is starting to look more like a classic expansion.

Signs of a quickening recovery are casting doubt on the notion that lasting stagnation has become the norm for the world's largest economy, a view advanced by Pacific Investment Management Co.'s Bill Gross, Northwestern University's Robert Gordon and former Treasury Secretary Lawrence Summers.

Behind the improved outlook: Consumers spending more freely after working down their debts, less drag from government budget restraint, a housing recovery and continued easy monetary policy.

"We are returning to an old normal," said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York. "A lot of the headwinds that are holding the economy back are beginning to abate, including local government spending, fiscal tightening and household balance-sheet deleveraging."

The term "new normal" was popularized in 2009 by Gross, Pimco's co-founder and chief investment officer, and former Chief Executive Officer Mohamed El-Erian to describe an era of lower returns, heightened government regulation, diminishing U.S. clout in the world economy and a bigger role for developing nations. The term was coined by Bloomberg News reporter Rich Miller.

Gross and El-Erian pegged U.S. growth at about 2 percent for the following three to five years, a period that is drawing to a close.

"What you'll see in the next few years is we're going to head back to a new destination," Scott Mather, one of Pimco's six deputy chief investment officers, said in an April 25 Bloomberg Radio interview. The firm's forecast for U.S. growth has increased to the high 2 percent level, "which is better than sub-2 percent level of growth that we've experienced for several years," he said.

The median forecast in a Bloomberg survey of economists this month calls for growth to accelerate to a pace of at least 3 percent for the rest of 2014 and the following two years. Dutta sees an expansion of 3.5 percent for the next three quarters and says 3 percent "seems reasonable" for the subsequent two years.


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