Predictions for 2014 economy? Here are five.
Predictions for 2014 economy are generally upbeat, with analysts seeing growing picking up and the bull market in stocks continuing. But the economy won't get back to normal in the new year, despite the positive predictions for 2014.
As 2013 draws to a close, analysts across the United States are drawing up economic predictions for 2014. The precise facts and figures may vary, but there are a few general trends economists mostly agree on for the coming year:
1. The economy will grow faster:
US gross domestic product (GDP) expanded slowly in 2013, probably growing a paltry 1.9 percent or so when the final figures come in. Economists expect that to increase roughly a percentage point in 2014, as the fiscal drag from fiscal policies like the sequester lifts and improvement continues to be made in strengthening sectors like housing and consumer spending. IHS Global Insight's chief economist, Nariman Behravesh, forecasts 2.6 percent GDP growth; analyst David Berson at Nationwide Economics predicts 2.7 percent growth. “Stronger growth will come from lower oil prices, improved international growth, rising household net worth, and less fiscal drag,” Mr. Berson writes in an e-mailed report.
“The US recovery lost steam in 2013 because of massive fiscal tightening,” Mr. Behravesh writes in his own e-mailed release. “The drag from fiscal policy will probably be far less over the coming year – especially in light of the budget deal made by US Congress. This will allow the underlying strengths of the economy to become more visible.”
Though growth will be faster in 2014, it's still expected to be below the long-term trend of about 3 percent.
2. Unemployment rate will fall to near 6.5 percent:
The Federal Reserve recently lowered its US unemployment forecast for the year, projecting it to fall as low as 6.3 percent. As late as September, the Fed was projecting between 6.4 and 6.8 percent. Influenced by that rosier outlook, the Fed took its first step toward trimming its monetary stimulus efforts, cutting back on bond purchases by $10 billion.
Worldwide, however, unemployment rates in developed countries should remain high, according to Behravesh at IHS. “The unemployment rate in the advanced economies will only decline from 8.1 percent 2013 to 7.9 percent in 2014,” he writes. “Technology-driven productivity improvements in both the manufacturing and services sectors will continue to erode the demand for labor. Firms’ aggressive cost-cutting efforts will continue largely unabated in 2014, heightening pressures on many governments to implement corrective pro-employment policies.”
3. The stock market will stall early, but annual returns will be positive:
Compared with the rest of the economy, stocks have been on a tear in 2013. The S&P jumped 25 percent, and the Dow topped 16000 for the first time. Most economists expect growth to slow in 2014, especially early in the year. David Joy, an analyst with Ameriprise Financial, expects a 10 percent correction early on, but nothing that would send the market in reverse. “Stocks will be higher in 2014, but it will be a modest year,” he says in a phone interview. “But I think the bull market will remain intact. Overseas expansion is helping, and corporations are well-positioned.”
And a correction, which many analysts anticipated as a side effect of the Fed's move to trim its stimulus, could be milder than initially thought. The stock market rallied on the Fed’s tapering announcement on Dec. 18, the Dow surged nearly 300 points, and the S&P 500 jumped 2 percent.
4. Inflation will stay low:
Most analysts expect inflation to hover at or below 2 percent, especially if energy prices remain stable. “Inflation is projected to remain low, and (importantly) below the Fed’s long-term goal of 2.0 percent for 2013,” Berson at Nationwide writes. Both total and core CPI [Consumer Price Index] should increase just a bit faster next year, but still high levels of unemployment (even if falling) and below-trend economic growth will mean low inflation – especially in an environment where oil prices are likely to trend downward.”
5. The housing market will continue toward normal:
The US housing market is still a long way from how it looked before the crash, but it’s getting there. Prices and sales are nearing pre-bubble levels, and mortgage rates will continue to rise. Zillow.com, a housing research firm, forecasts that the average rate for a 30-year fixed mortgage will top 5 percent for the first time since 2010. Housing inventory, which remained tight through most of 2013, is growing; foreclosures and the number of homeowners behind on their mortgage payments continues to drop. “Housing, autos, and manufacturing should be the strongest sectors of the economy,” Berson writes.