2014 will be a breakout year for the U.S. economy as private-sector demand accelerates and fiscal drag eases, according to the Economic Advisory Committee of the American Bankers Association.
• According to the committee, which includes 13 chief economists from among the largest banks in North America, inflation-adjusted GDP growth for 2014 will be 3.0%, compared to a 2.3% annual average since the Great Recession ended in mid-2009 and the post-recession high of 2.8% in 2010.
• “This will be the strongest economic growth since the expansion began in 2009, and the committee’s strongest forecast since 2005,” Christopher Low, chairman of the group and chief economist of First Horizon National Corp’s FTN Financial, said. “We expect faster growth in business investment and stronger job creation as the economy improves.”
• The bank economists believe the housing market will continue to grow in 2014 as wages increase and the unemployment rate continues to fall. The group sees the housing sector gaining strength as home sales recover from depressed levels. The committee forecast is that home prices nationwide will rise solidly and residential investment will increase 12.3% in 2014. The strengthened housing sector will support consumer spending.”When families get into new homes, they spend more on appliances, furniture, electronics and building material,” says Low.
• Consumers are also finding themselves on stronger financial footing in the New Year and have regained confidence. The group believes consumer spending will support economic growth over the year ahead. Automobile sales are also expected to remain strong.
• As the recovery improves, the group believes underlying drivers of economic growth will broaden beyond housing and consumption. Business spending and exports should also be stronger in 2014.
• The fiscal environment will be friendlier in 2014 and will exert less drag on consumers and businesses over the course of next year.
• Job growth will accelerate from near 180,000 per month last year to over 200,000 monthly in 2014, according to the bank economists.
• “Faster job growth will pull the unemployment rate down to 6.4% by Q4” Low said. “The Federal Reserve will continue to monitor the job market and taper asset purchases accordingly. In the meantime, watch for investors to shift focus from the Federal Reserve’s asset purchases to its guidance on rate policy.”
• The committee expects the Federal Reserve to maintain a very accommodative policy stance, keeping the federal funds rate extremely low.