Will 2014 Be the Year the Economy Finally Takes Off?
Things have been grim since the recession officially ended in June 2009. Job creation is barely outpacing population growth, and our GDP growth is sluggish.
But next year, economists foresee a convergence of several factors that could finally kick this recovery into high gear.
First on the list is the federal budget. After epic fights this year over the "fiscal cliff," the "sequester," and a bunch of other wonky stuff, lawmakers have finally managed to cobble together enough tax hikes and spending cuts to at least stabilize the country's credit rating.
Rising home prices are helping, too. Fewer Americans are trapped in underwater mortgages that leave them owing more on their home than the house is worth. Rising prices also boost the net worth of homeowners, adding to consumer confidence.
Businesses have been complaining for years about "uncertainty" in the public policy area. Next year, some of those unknowns will finally be resolved.
Companies have held off on hiring because they're waiting to see how they'll be affected by health care and finance reform laws, according to John Silvia, chief economist at Wells Fargo (WFC). The implementation details of both of those laws will become clearer over the next year.
"Dodd-Frank and Obamacare need to be worked out, then employment takes off," Silvia said. He believes 2014 "could be a very good year."
Just how good? Steve Blitz, chief economist at ITG Investment Research, thinks GDP growth in the 3.5% to 4% range is possible for 2014, if the global economy doesn't deteriorate. Monthly job growth could peak in the 300,000 range, he believes.
Blitz anticipates a large number of Millennials entering the car-and-home-buying stage of life, giving an added boost to the economy. Plus, the drop in defense spending associated with the draw-down of troops from Iraq and Afghanistan should be largely behind us.
"All of these should add up to a better economy in 2014," Blitz said.
At Merrill Lynch, the economists' projections aren't quite as high -- the bank sees America's economic growth next year at 2.7%. But Merrill Lynch thinks the Federal Reserve will hike interest rates at the end of 2014, versus the 2015 timeframe it projected earlier this year. For that to happen, the bank believes, unemployment needs to fall to 6.5% from its current 7.6% rate -- a feat that would require job growth to accelerate to 300,000 new positions per month.
That's a number that looks more like a real recovery.
The Federal Reserve recently acknowledged that target was possible, when it lowered its unemployment forecast and said it believes the rate may hit 6.5% in 2014.
Stocks and bonds had a fire sale on the news, with investors fixated on the possibility that the Fed may stop pumping money into the economy.
Lost in the panic was the promising idea that 2014 may be the year when we finally put the Great Recession squarely behind us.
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