It’s that time! The annual year end review and forecast for 2014. Let’s see how we did last year, shall we?
Here’s the whole post from last year in all it’s gory detail http://fit-biz4u.com/blog/2013/01/ Suffice it say, as a forecaster I’d better not be spending my time in Vegas. In short, I guessed that 2013 GDP would rise by 2.7%, Unemployment would drop to 7.2%, interest rates would rise by year end, housing prices would increase and stabilization in the US would lead to a more stable Europe and growth in Asia.
So how did I do? Well GDP is coming in at 1.9% http://www.bea.gov/newsreleases/national/gdp/2014/gdp4q13_adv.htm, so I was way off here. While there are many
reasons, a big one is reduced government spending caused by the sequester. The unemployment number in December came in at 6.7% a full half point lower than my prediction http://www.bls.gov/news.release/pdf/empsit.pdf. Not only did home prices increase, they were almost off the chart with average increases of 13% and some places growing close to 20%. Interest rates did not rise and I don’t think they will in all of 2014 but expect them to do so at the beginning of 2015. Europe has stabilized, but not because of leadership from America. China, India and Brazil continue to slow, but surprisingly Japan has experienced significant growth. In short, the economy in general continued on a positive glide path but was very uneven. Now on to some details.
GDP/Stock Market. While I continue to overestimate GDP growth, it’s not just me (honest). In 2013, the stock market had it’s best year in the last 5 years. In 2013 the S&P grew 20%, while both the Dow and Nasdaq hit all time highs. I believe we will continue this trend, but expect stock market growth to be half that. Corporate earnings will continue to be strong, but the equity markets will waffle as the Fed starts to restrain the amount of money they are pumping into the economy every month. I’ll double down my GDP expectations and shoot for 2.3% growth for 2014.
Jobs. The 6.7% unemployment rate was a welcome surprise, but like each of the previous years, it just doesn’t feel as good as it should. Part of that is that many people have quit looking for work so they are not counted in the official statistics. The other is that many of those jobs pay less than before, at least in the short term. My prediction for 2014 is that the job picture will continue to get better. That by end of 2014 we will be at 6%. I also think that as we get closer to “full employment”, we’ll start to see wage pressure and real incomes will begin to rise by year end.
Business Lending. Last year I said that growth in this sector would continue and that lending restrictions would loosen and that has happened. However, business customers are still reluctant to invest so business lending is not a full capacity. I would expect customers to be hesitant through the first half of 2014 and then start to invest more as their confidence grows.
Housing. This sector grew much faster in 2013 than I anticipated. 2014 should moderate somewhat, but still have reasonable growth – perhaps in the 8% range instead of 15%. Some markets are actually considered overheated and talk of another real estate bubble is occurring. I don’t think that is accurate; housing will grow, but slower than last year.
Internationally. I’ll lump the whole world together rather than break everything out. Emerging markets have begun to slow down, we expect that to continue. Industrialized economies will continue to have some growth, but slower than the US. Unless there is a major terrorism or other geopolitical event, things should be modestly better.
US politics. This is the gift that keeps on giving. Previously I said that it would be hard to see how they could make anything worse. Then in October, they shut the government down rather than find common ground. Additionally the sequester, a poison pill amendment designed to make things so bad that Congress would have to negotiate was enacted. If there was any sort of silver lining it’s that the sequester did indeed reduce the US deficit significantly. What does that mean for 2014? Impossible to say. We reach the debt ceiling in about a month. It’s probable that Congress will pass an increase, but I was certainly wrong about the shutdown last year. I think that the political tone will not get better and certainly get worse as we come into the 2014 midterm elections.
So to wrap it all up. After experiencing the worst recession in 70 years, we have had the worst recovery ever. It has been slow, painful and the subject of partisan infighting of the worst kind which has exacerbated the process. Having said that, American businesses, individuals and governments have reduced debt, lowered spending and are generally in much better economic shape than before the recession. This bodes well for the long term future, although short term will continue to feel rocky and difficult.