Monitor Breakfast

Moody's economist Zandi sees US economic positives amid gloom

Mark Zandi, chief economist at Moody's Analytics, is 'optimistic' about the economy and sees unemployment trending down toward 8 percent by the end of 2012 as cyclical forces such as higher oil and food prices, as well as effects from the Japanese earthquake, begin to ease.

Michael Bonfigli / The Christian Science Monitor / File

Moody's chief economist Mark Zandi talks to reporters at a Monitor Breakfast in 2010. Mr. Zandi sees several reasons to be optimistic about America's economic future, including the easing of cyclical speedbumps and the strength of the nation's educational institutions.

By Dave Cook

July 18, 2011, 12:00 a.m. ET

Chief economist Mark Zandi of Moody's Analytics is also cofounder of Economy.com. Mr. Zandi, an economic forecasting expert, advises politicians from both parties. He was the guest speaker at the June 28 Monitor breakfast in Washington.

The economic outlook:

"I am optimistic about the economy. Economic growth was about 2 percent in the first half of the year.... And I expect growth to accelerate to near 4 percent by year's end and into 2012 [at] about the same rate."

Why he is optimistic:

"Cyclical forces weighing on the economy's growth – including ... higher oil prices, food prices, and the Japanese quake effects ... – are lifting and [that easing] in fact will provide a boost to growth as we move toward year's end [and] into next [year]."

Risks to the economy:

"For my optimism to come to pass, a number of key assumptions have to hold. One is that $4 for a gallon of regular unleaded [gasoline] was the peak for the year.... If oil prices rise again, then I think my optimism would fade pretty fast. Nothing is worse for the economy than higher gasoline prices."

What he sees happening if Congress does not pass a measure to lift the national debt ceiling:

"We go into recession and my forecast would be blown out of the water.... The collective psyche is extremely fragile.... As I talk to business people in every industry across the country, they are extraordinarily nervous. That's why if anything goes slightly wrong, the negative consequences are amplified."

The jobs outlook:

"By next year ... we will have enough job growth that will more than absorb the folks coming into the labor force, and unemployment will fall by year's end 2012. I expect an unemployment rate that is closer to 8 percent [then]."

A major advantage for the American economy:

"Our greatest gem is our educational institutions. It is going to take 100 years for anyone, anywhere on the planet to replicate what we've got there."

Whether cutting spending or eliminating tax breaks (aka tax expenditures) is the preferred way to trim the federal budget:

"Economically, cutting spending and cutting tax expenditures are the same thing."

Follow author Dave Cook on Twitter @breakfastguy.