July 28, 2014
U.S. outlook: For now, ’14 looks fortunate for many

There are countless explanations for this growth, but a few stand out as major drivers in 2014

By Ken simonson | 02/18/2014

Although economics has been nicknamed the dismal science, most forecasters are pretty optimistic about the U.S. economic outlook for 2014. A survey of 50 economists released by the National Association for Business Economics on December 9 included a number of cheery predictions. For example, inflation-adjusted gross domestic product (real GDP) is expected to increase 2.8 percent from Q4 2013 to Q4 2014 (up from an estimated 2.1 percent growth rate last year) at the same time that the unemployment rate is expected to drop from its 2013 average of 7.5 percent to a new average of 7 percent. The consumer price index, which measures price fluctuation, will rise less than 2 percent in 2014, and the interest rate on the 10-year Treasury note – the benchmark for many mortgages as well as federal government borrowing – will increase only slightly, from 2.71 percent at the end of 2013 to 3.25 percent in late 2014.

There are countless explanations for this growth, but a few stand out as major drivers in 2014. One is what has been called the “shale gale.” Increased production of natural gas is directly resulting in lower energy costs and a decreased trade deficit, both adding to incomes and investment. Another driver is a combination of improved stock and home values and consumer discipline, which are enabling households to repair their balance sheets. Finally, there has been a resurgence of home and light vehicle sales, supporting further job gains, business investment, and confidence.

Growth, however, , is never unimpeded by potential setbacks, and 2014 will be no different. Sources of uncertainty abound, including austerity at all levels of government and potential interruptions of federal programs. The full impact of the Affordable Care Act is yet to be determined, and the possibility of a federal debt default looms despite short-term deals made in Congress. See a pattern? Tapering by the Federal Reserve also adds to the uncertainty.

With all of these cross-cutting influences, there will be starkly divergent outcomes for different sectors. Winners include oil and gas (drillers, suppliers, transporters), manufacturing (petrochemical and capital goods), and information technology (social media). Losers include federal contractors and suppliers (due to cuts), office leasers and developers, and the coal, nuclear, and solar energy industries.

Overall, 2014 is beginning on a brighter note than the last few years. But those years have shown that any number of unforeseen developments can derail the forecasts, in either direction.

Simonson is chief economist at Associated General Contractors of America. He can be reached at simonsonk@agc.org

 


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