Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the U.S. economy won’t expand more than 2 percent this year even with one or two quarters of faster growth.
“A 2 percent ‘new normal’ economy is the best we can expect,” Gross said in a radio interview with Tom Keene after a report showed employers hired fewer workers than forecast in March and a decline in the size of the labor force pushed the jobless rate down to a four-year low. “The sun isn’t going down, but there’s certainly an element of dusk to it.”
The U.S. economy may benefit from improved prospects for energy and housing, pushing growth to as much as 3 percent for a brief period this year, although the impact of those industries will be limited to one or two quarters at best, Gross said today. Mohamed El-Erian, Pimco’s chief executive officer who shares the role of chief investment officer with Gross, said today that job seekers are getting discouraged and that it’s getting much harder to get growth out of the economy.
Pimco, based in Newport Beach, California, in 2009 coined the term “new normal” to describe an era of lower returns, heightened government regulation and shrinking U.S. clout in the world economy following the 2007-2009 financial crisis.
U.S. growth may accelerate to a 3 percent level at the end of the year as the recovery in housing strengthens, while staying at 1.5 percent to 2 percent for 2013 because of slower expansion in the first half triggered by fiscal policy tightening, Pimco said last month.
“It is really worrisome that we have the lowest monthly job creation since last June and the lowest participation rate since 1979,” El-Erian said in a Bloomberg Television interview with Betty Liu today. “That makes escape velocity less likely,” referring to a pace of expansion that would lead to a sustainable economic rebound.
Job creation won’t reach more than 125,000 in the second quarter as structural influences including technology, demographics and the transfer of jobs to Mexico and China are difficult to counter with monetary policy, Gross said.
Payrolls grew by 88,000 workers, the smallest gain in nine months and less than the most-pessimistic forecast in a Bloomberg survey, after a revised 268,000 February increase, Labor Department data showed today in Washington. The median forecast of 87 economists called for a 190,000 gain. The jobless rate fell to 7.6 percent from 7.7 percent.
The U.S. will benefit from improving conditions in Europe and Japan, Gross said. Mario Draghi, president of the European Central Bank, signaled yesterday that the ECB stands ready to act, which could mean a “policy rate cut” in May, according to Gross. Draghi’s revelation about extensive discussions around standard and non-standard measures may mean going around the banks to lend directly to weak small businesses, which could happen in the next six months, Gross said.
“I suspect at some point the ECB will go all in as well,” said Gross.
In contrast to counterparts in the U.S. and Japan, the ECB hasn’t introduced any new stimulus since announcing an as-yet-untapped bond-purchase program last year. With the 17-nation economy entering a second year of recession and last month’s bungled Cyprus bailout renewing investor anxiety about the region’s debt crisis, the central bank is under increasing pressure to foster growth.
Pimco, a unit of Munich-based insurer Allianz SE, managed $2 trillion in assets as of Dec. 31. Gross runs the $289 billion Pimco Total Return Fund.