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2014 Economic Forecast: Things are getting better, but slowly

Posted by Allan Peiser, CPA on Mar 3, 2014 10:40:20 AM

By most accounts, the recovery after this most recent economic downturn should be significantly better than it was after the 2008 recession. As the housing market recovers, unemployment decreases, and overall consumer confidence increases, it is likely that the economy could be in much better shape by this time next year. Factors contributing to this assessment include:

  • Moderate Growth:

Perhaps most importantly, businesses should anticipate moderate growth throughout 2014. According to Forbes, the U.S. economy is projected to grow 2.6%, adjusted for inflation. Without inflation adjustment, which is more comparable to companies’ top line sales growth rates, the forecast is 4.3 percent growth,” writes Forbes contributor Bill Conerly. There is some concern, though, that the U.S. economy may not meet these projections as the global economy loses steam.

  • Unemployment:

While slowly-improving unemployment numbers are proving to be a drag on economic growth, the Federal Reserve predicts that unemployment could be down to 6.5% by the end of next year. According to Kiplinger’s, approximately 2.3 million new jobs could be created in 2014.

  • Housing Recovery:

Indicators seem to point to modest increases in the sale of existing homes and new home construction. According to Fannie Mae’s January 2014 National Survey results, consumer attitude reached an all-time survey high, from 50% to 52%, when asked about the ease of getting a home mortgage. The National Association of Home Builders predicts that total housing starts could increase 25% over 2013 with a 32% increase on single family construction.

  • Consumer Confidence:

Based on the results from Consumer Confidence Survey of January 2014, confidence in the economy is rising, albeit slowly. When asked about business conditions, those claiming conditions are good, rose from 20.2% to 21.5%.; those claiming conditions were bad slightly decreased from 22.8% from 23.2%.  In addition, there was an increase in the the percentage of people who thought that jobs were “plentiful” and that their salary would rise.

  • Manufacturing:

While, according to Reuters, factory activity was at an eight-month low and as reported by the Institute for Supply Management the index of national factory activity fell to its lowest level since May 2013, there is some reason to be optimistic.  According to the Texas Manufacturing Outlook Survey, conducted by the Dallas Federal Reserve Bank in January 2014, manufacturing, at least in Texas, is expanding.  Manufacturers were asked whether output, employment, orders, prices and other indicators increased, decreased or remained the same from the previous month. The survey results found that production index increased slightly, new orders surged, shipments rebounded, there was increased hiring and longer workweeks, and there was upward pressure on prices and wages - all indicators of a positive outlook for 2014.

Although these indicators point to a modest 2014 economic recovery, are some economists who believe otherwise. Northwestern University economist Robert Gordon recently published, “The Demise of U.S. Growth: Restatement, Rebuttal, and Reflections,” where he discussed four “headwinds” that will potentially slowdown growth in the coming years. He stated that:

“Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades.”

Conversely, USA Today reported that “despite some disappointing economic news recently, top economists surveyed expect the recovery to accelerate this year.” Chief U.S. economist of Barclays Capital predicted that 2014’s growth will be due to higher consumer and business spending. Always good news for manufacturers.

For more information, contact Allan Peiser at (214) 635-2503, or one of our other experienced professionals. 

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: Manufacturing