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The Issue: 2014 should be a good year for economy

By NICOLE DEBEVEC, United Press International   |   Dec. 15, 2013 at 5:01 AM   |   Comments

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2013 has been marked by economic distractions such as the government shutdown, concern over a possible U.S default and a general recalcitrance by lawmakers in Washington.

What can we expect in 2014, economy-wise?

Business officials, economic experts and trade organizations all say 2014 should be a good year -- not great, but good -- for economic growth.

The gross domestic product will rise to 3 percent while unemployment is expected to dip to less than 7 percent, WalletHub.com's economic experts forecast.

Consensus among forecasters surveyed by the National Association for Business Economics also said the growth would reach the 3 percent threshold, historically considered the line defining economic strength and weakness, Money magazine reported.

The nation's purchasing and supply management executives in their December 2013 Semiannual Economic Forecast also said they expected a continuation of the economic recovery that began in mid-2009. The forecast indicated revenues were expected to increase in 16 manufacturing industries, and the non-manufacturing sector expects 14 of its industries will see higher revenues.

The stock market was predicted to be solid, although volatile, with some experts predicting it would grow while others said a correction was on 2014's horizon.

"These markets are primed for a big correction," Thomas Smith, assistant professor of finance at Emory University, told WalletHub.com.

"A lot of this is speculative demand pushing equity values up, and this could keep up for another year. But I am pretty confident that we are going to see drop in the averages. And, if this happens, we could see a drop in other sectors and the start of a little recession."

Still the best bet is that the stock market will maintain its upward trajectory in 2014, WalletHub.com said.

Interest rates also were forecast to remain low in the foreseeable future thanks to the combination of record-low credit losses and the U.S. Federal Reserve's commitment to hold current policies fast until it sees better evidence of economic improvement taking place, economists told WalletHub.com.

"Because current inflation and expected future inflation are at low levels and unemployment, while gradually falling, remains high, I expect the Federal Reserve to continue the course of depressing interest to promote growth, employment and the recovery of the housing market," said Michael L. Bognanno, chairman of Temple University's Economic Department. "Current mortgage rates remain very attractive by historical standards, though they have climbed just over half a percent from the levels in 2012. The levels in 2012 were the lowest rates in U.S. history."

The Fed has said it would begin raising rates only after unemployment falls to 6.5 percent. Even if job creation picks up, that threshold could be more than a year off, Money magazine said.

Money offered several scenarios for when a 6.5 percent jobless rate is reached, based on the monthly job creation. If the monthly rate of job creation is 300,000, a 6.5 unemployment rate would be reached during the first quarter of 2014; if 250,000, the fourth quarter of 2014; if 200,000, third quarter of 2015, and if 150,000, first quarter of 2018.

Politics also figure into economic projections for next year. With midterm elections looming in November and tanking approval ratings of Washington across a host of national polls, some experts said they didn't expect any politically motivated economic impediments along the lines of the partial government shutdown of 2013.

"We will be surprised to see better political cooperation in Washington in 2014, because neither side will want to repeat the unpopular and ineffective battles of 2013," Steve A. Yetiv, professor of international relations at Old Dominion University, told WalletHub.com.

Still, some economists caution extreme wings on both sides of the aisle who are in "safe" seats heading into the 2014 midterms likely won't be quiet concerning their pet issues.

"Politics is currently a huge weight on the economy," M. Douglas Berg, assistant dean of the Department of Economics and International Business at Sam Houston State University, told WalletHub.com.

"Uncertainty over the Affordable Care Act, calls for increases in the minimum wage, and increased regulation are all disincentives to hiring and investing."

The U.S. Energy Information Administration projects retail gasoline will average $3.37 a gallon in 2014, down from an average of $3.50 in 2013. Much of this trend can be attributed to the domestic energy revolution witnessed in recent years, and is contingent on no major surprises from the Middle East in the coming months.

"The natural gas revolution is real and has been felt at the firm and household levels. It has also enhanced energy security as reserves have increased significantly," said Shawkat Hammoudeh, professor of economics and international business at Drexel University and associate editor of Energy Economics. "Deregulations and low retail natural gas prices have also lowered the power/gas bill that [a] U.S. household pays in the last few months. This should offset a large part of the sequestration and higher payroll tax impact on the U.S. economy.

Experts also told WalletHub.com the renewed focus on domestic energy resources has meant positive gains in other industries.

"The housing markets in some of the more remote areas of the country are currently experiencing a boom in extracted resources," said Andrew Carswell, associate professor of housing and consumer economics at the University of Georgia. "As someone [who] believes in long-term neighborhood stability, this is something to keep an eye on in 2014, especially since we are slowly moving to a self-dependent state of oil consumption."

Money magazine said the housing market would come back to life, creating a multiplier effect in the jobs market. Each new home built creates about three new jobs -- and new construction is expected to exceed 1 million units for the first time since the crisis began.

Taking an international view, bank economists and analysts at the 47th annual assembly of the Latin American Federation of Banks in Miami last week were optimistic that 2014 would be a better year for the global economy -- as well as most Latin American countries -- but challenges remain, the Miami Herald reported.

"We [the Latin region] have the highest index of inequality on the planet," said Jorge Horacio Brito, an Argentine banker and federation president. Addressing income inequality should be a top priority in the region, he said, while financial inclusion "should be on top of the agenda of the financial industry."

© 2013 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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