WalletHub’s 2014 Economic Predictions
Update: With the year coming to a close, we decided to revisit WalletHub’s 2014 Economic Predictions to see how we ended up doing. We graded each of the predictions and provided explanations for our marks. If you think we were either too lenient or too harsh, make sure to let us know in the comments section below. And if you’re interested in getting a jump start on all the big WalletNews of next year, check out WalletHub’s 2015 Economic Predictions.
2013 was a year characterized by economic distractions, with things like the government shutdown, concerns about a potential U.S. default, and overall political obstinacy taking center stage. So, it’s fair to wonder: Will 2014 be any different?
While it’s impossible to know for sure, we can certainly offer some educated predictions for what the New Year has in store for consumers’ wallets. From GDP growth and unemployment to the stock market and gas prices, you can get a sneak peak of the most important issues facing your money in 2014 by checking out our predictions below.
- GDP Will Rise to 3%, While Unemployment Drops Below 7%
Explanation: WalletHub interviewed a number of leading economists in preparing its 2014 predictions, and the general consensus is that the economy will continue its slow growth in 2014, turning the year into the transitionary period that ’13 should have been and bringing the economy back on track heading into 2015. You can check out our experts’ comments in full below.
Grading Rationale: The only critique one can levy against this prediction is that we were perhaps too conservative. While GDP actually declined during the first quarter of the year, dropping at an annual rate of 2.9%, it has posted major advances as the year has progressed – increasing at an annual rate of 3.9% and 4.6% in the second and third quarters, respectively.
In terms of our other prediction, the unemployment rate actually began the year under 7%, at 6.6%, as figures for December 2013 were not available to us in making last year’s picks. The unemployment has stayed under this threshold all year, ultimately dropping to 5.8% in October and November.
- Stock Market Will Be Solid, Though Volatile
Explanation: The cautious optimism with which we’ve viewed the economic recovery of late has been clearly reflected in the stock market, which soared to record-highs in 2013 yet was marked by tremendous volatility. What’s in store for 2014? Some experts predict continued growth, while others feel that a significant correction is in order.
“These markets are primed for a big correction,” says Thomas Smith, assistant professor of finance at Emory University. “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.”
Those competing viewpoints will likely manifest destiny to a certain extent, but the best bet is that the stock market will continue to rise along with the economy in 2014. Not only will companies be healthier in the New Year, but with disposable income on the rise and low interest rates fostering a dearth of attractive bond options, we should see more individual investors re-enter the market as well.
Grading Rationale: The S&P 500 has advanced 8.33% through the third quarter of the year, putting us on pace for a very healthy year of gains and the continuance of what is soon to be a six-year bull market. But while the stock market has posted a number of record highs in 2014, the year has also been marked by a number of scary motifs for investors – from the conflict in Russia and Ebola to plummeting oil prices and the end of Federal Reserve bond buying – that have generated a great deal of volatility and produced a number of wild market swings. In other words, our prediction was spot on.
- Interest Rates for Mortgages, Car Loans & Credit Cards Will Stay Low
Explanation: Interest rates will remain low for the foreseeable future due to the combination of record-low credit losses (with the exception of a single quarter in 2006, charge-offs are at the lowest level since 1995) and the Federal Reserve’s commitment to retain current policies until more demonstrable economic improvement takes place.
“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,” says Michael L. Bognanno, chair of the Department of Economics at Temple University. “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.”
While the Fed’s clear directives will keep market volatility in check to a certain extent, some experts believe that deflation could become a problem. “Deflation is possible, but not likely,” says James G. Devine, professor of economics at Loyola Marymount University.
Grading Rationale: Short-term interest rates continued to hover near zero during 2014, despite the Federal Reserve curtailing its extended bond-buying period in late October. Consumer interest rates therefore held steady. The average credit card interest rate, for example, had declined 0.86% as of the end of the third quarter. The continuance of low interest rates led to a strong year of consumption, with the year’s credit card debt increase expected to top $60 billion and the auto industry displaying impressive growth.
- Congress Will Be On Better Behavior, But Won’t Learn Lesson
Explanation: With midterm elections on the horizon and approval levels disturbingly low, we can expect politicians to be extremely image-conscious in 2014. Both Democrats and Republicans understand how politically devastating another government shutdown or fiscal cliff scare would be, as evidenced by the Paul Ryan – Patty Murray budget talks, so it’s unlikely that we’ll see any politically-motivated economic impediments of that magnitude this year.
“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,” says Steve A. Yetiv, professor of international relations at Old Dominion University. “Congress is stupid, but they tend to be especially stupid in odd-numbered years,” adds Elliott Eisenberg, CEO of Graphsandlaughs.net and a former senior economist at the National Association of Home Builders.
Nevertheless, the underlying ideological differences that fostered such crises in the past still remain, and there are plenty of extremists on both sides of the isle whose seats are safe heading into 2014. It would therefore be naïve to expect smooth political sailing in the New Year, and Congress certainly won’t do everything it can to spur true economic growth.
“Politics is currently a huge weight on the economy,” says M. Douglas Berg, assistant dean of the Department of Economics and International Business at Sam Houston State University. “Uncertainty over the Affordable Care Act, calls for increases in the minimum wage, and increased regulation are all disincentives to hiring and investing.”
Grading Rationale: While the government didn’t shut down in 2014, it didn’t get much done either – with the 113th Congress producing the fewest laws to be signed into action of any Congress in the last 60 years. In other words, Congress was indeed behaving better this year but it clearly did not learn its lesson, at least in terms of the public’s desire for some sort of productive action. The newfound Republican majority in the House should produce some interesting dynamics for 2015, however, as President Obama attempts to cement his legacy despite their opposition in the last two years of his term.
- Obamacare Will Remain Front & Center
Explanation: Don’t be fooled into thinking the Obamacare fight is over just because website issues and the government shutdown were not enough to derail health care reform. The law is due to be implemented in earnest in 2014, and there will be plenty of opportunities for partisan gamesmanship in the New Year.
“The policy environment is highly uncertain and largely negative for many businesses and industries,” says John Garen, professor of economics at the University of Kentucky. “Health care reform, energy regulation, and financial market regulation are negative value propositions, making productivity lower and limiting investment. This is unlikely to change for 2014.”
Grading Rationale: Obamacare was an undercurrent throughout the year, helping to frame the debate in the midterm elections, serving as a target for retribution after President Obama announced his new immigration plan and providing fodder for enrollment statistics. However, there was no big blow-up regarding the Affordable Care Act during 2014 and, in truth, it was not at the forefront of public consciousness for the whole year. So, given than Obamacare was a big deal in 2014 – just not quite as big as we thought at this time last year – we had to give our prediction a B grade.
- Gas Will Be Cheaper
Explanation: The U.S. Energy Information Administration projects that retail gasoline will average $3.37 per gallon in 2014, down from roughly $3.50 in 2013 and $3.63 in 2012. Much of this positive trend can be attributed to the domestic energy revolution witnessed in recent years, and provided there are no major surprises from the Middle East in the coming months, we should expect to see low prices at the pump throughout 2014. This should help household balance sheets gain a bit of breathing room and will hopefully make people less reliant on debt to pay for everyday expenses.
“The shale natural gas revolution is real and a game-changer for the country’s energy cost. It has been felt at both the firm and household levels," says 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 the U.S. household pays in the last few months. There are also increases in the average American household income coming from production from newly discovered shale oil and natural gas reserves. There is an estimate that this increase in new production added $1,200 to the average household income last year. These price and production effects should offset a large part of the sequestration and higher payroll tax impact on the U.S. economy.,” “Deregulations and low retail natural gas prices have also lowered the power/gas bill that the 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."
Interestingly enough, renewed focus on domestic energy resources has also prompted gains in other industries of late. “The housing markets in some of the more remote areas of the country are currently experiencing a boom in extracted resources,” says Andrew Carswell, associate professor of housing and consumer economics at the University of Georgia. “The Bakken reserve in North Dakota comes to mind. House prices are rising there, and the supply cannot keep up with demand, from the last that I heard. As someone that 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.”
Grading Rationale: Boy, were we on point with this one. With global oil prices plummeting, prices at the pump have declined drastically as well, serving almost as a mini tax break for drivers. As of Dec. 15, the national average price for a gallon of regular gas is $2.55, compared to $3.23 last year. Given the extent to which gas prices have fallen, we had no choice but to give ourselves an A+ for this prediction.
Overall Grades: Altogether, WalletHub’s Economic Predictions for 2014 received one A+, four A’s and one B. That’s certainly not too shabby. Let’s just hope that we can keep the crystal ball clear as we prepare to make our Predictions for Your Wallet in 2015.
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While the U.S. economy is expected to have sluggish job growth, the good news is that results from a survey conducted by the National Association of Colleges and Employers (NACE) indicates that employers are expected to increase hiring by 7.8% for new grads over last year. Therefore, there is reason to be cautiously optimistic.
Whether it will be easier or harder to find work for new grads depends on a few factors. Namely the major field of study that one earned a degree and relevant work experience. Those that have completed internships or cooperative experiences related to their field of study are likely to have an easier time finding work in line with their degree.
According to the NACE survey, the majors that are most in demand are: finance, accounting, business administration, management information systems, marketing, mathematics, political science, psychology, chemistry, physics, public relations, mechanical, electrical, computer and chemical engineering. It is also worth mentioning that healthcare and social service sectors are expected to see the biggest growth as the U.S. population is aging and requiring more of these services.
The U.S. economy should continue to grow, albeit at a slow rate of somewhere between 2 - 3%. Good news is the Congress's budget and debt ceiling issues are gone and should not hinder the 2014 recovery. Bad News is that with the slow recovery, unemployment will probably be hovering around 6.5% for 2014.
The Federal Reserve will continue to take a cautious approach to the recovery and if all goes well, by 2015, you should start to see interest rates rising slowly. The private sector should pick up investment spending, however, the public sector austerity effects will still be felt in many states during 2014
Economy & Everyday Life
The 2014 economic environment will vary for the average consumer depending where you are located and how well your area economy is doing. Overall, my sense is the consumer will further pick up spending activity toward home buying as people get further away from the recession, employment remains stable (to them) and home prices remain very reasonable.
Durable goods should see more positive growth for the same reasons. Prices for nondurable goods should stay relatively low due to the fact that global commodity price movement is very modest and\or flat in many markets.
As for Europe in 2014, you will see countries like Germany and Great Britain making positive economic progress. Countries like Italy, Greece and Spain are in the midst of austerity issues, high unemployment and deleveraging or shedding of public assets to the private sector and this will continue throughout the year. Good news overall for Europe is that it should now start to be on a more stable economic footing (albeit in certain cases certain countries may have a minor recession, and for others a more glacial economic growth or flat economic growth).
The global economy in general should see the developing economies (emerging markets) growing as a result of the developed economies growing as they will stimulate the developing countries' export activities.
My sense is that the Tea Party wing of the Congress is starting to lose momentum regarding the threats of future government shut down and economic/political threats to our economy.
In addition, I believe the Congressional man-made economic scare has run its course, however, there are some that believe this type of strategy will now shift to the states. If this happens, you could see an organized economic threat to the nation on a scale not seen before.
Outlook for 2015
2015 could turn out to be a better year than 2014 if the 2014 economy makes a 3% growth rate with strong consumer, business, and export confidence/growth at its core. This should also help with the reduction of the unemployment rate during 2015.
If (1) Congress and the states can keep governing by crisis management at bay and reduce the public austerity spending patterns and restore their budgets to a more sensible level, and (2) the Feds manage the Monetary Policy in a cautious but positive fashion, the private and consumer sectors will do their part to contribute to more successful 2015 economy versus a 2014 economy.
The 2014/2015 economy will definitely play a role in our national 2016 political activity.
While 2014 is likely to prove a difficult year to forecast, we project real GDP growth to run at about 2 percent. This is lower than the Federal Reserve forecast, but their forecasts have been optimistic by about a full percent over the past several years. The difficulty in forecasting U.S. domestic economic performance is that deep troubles remain in Europe
Economy & Everyday Life
I think that this will be a slow and stable year of labor market improvement, but it won’t really feel that way. There are so many fewer folks working now than in 2007 it is hard to see a consumption rebound driving growth. Inflation is definitely a possibility (and ironically a sign of potential recovery), but it is hard to imagine runaway inflation clobbering households in 2014 or 2015.
Though the EU has pulled out of a recession, and it is important to note that the U.S. has never before dodged a European recession, weakness remains not only in their financial integration, but in fundamentals of their economy. Germany, the UK, France and the Nordic countries are strong, while the Mediterranean nations are either in, or toying with a depression. This obviously influences their continued monetary union, but it also risks the spread of non-economic instability on the continent.
Emerging markets are popping up everywhere, but the durability of their growth depends upon political stability and the source of their recent growth. Energy rich places have done well, but that is rarely sustainable. More strict command economics, like China, are weakened by factor growth that is not directly linked to productivity. Moving workers into factories may boost GDP, but sustained productivity growth of those workers are needed for prosperity.
No, not really. The level of economic uncertainty either as measured by the Uncertainty Index or by a morning read of the newspapers is astonishing high.
I think that the see-saw of the Affordable Healthcare Act is enough to dampen hiring and purchases by business, now at least through 2015. However, some economic growth might also ease some of the Federal budget woes which are fueling, in part, the split in Congress.
Outlook for 2015
I am afraid I think it will be much like it is today. We will have an effectively broken Federal healthcare law, which will still be rolling out to different groups at different times. I think the House, and probably the Senate will be wholly under the control of one party, with a weakened and ineffective president at the nation’s helm.
The Federal Reserve will have tapered its QE3 to almost nil, while keeping the borrowing window wide open at near zero rates. Labor Force participation will remain low, and the number of unemployed or poorly employed Americans will be just about where we are now.
The only question really is how we will feel about the world and its prospects this time next year. The actual reality will be just as it is now.
Things won't change that much on a day-to-day basis. Most likely the economy will continue its slow and fragile recovery as it has been doing in 2013.
That is part of the problem but it looks like it will be a new reality for many years to come, so we will have to add the political uncertainty to the equations here in the U.S. (as one would do for emerging markets like Argentina and other countries) making all U.S. forecasts less trustworthy than before.
Outlook for 2015
After the Affordable Care Act starts its implementation this year, firms will be less uncertain about its effects and will make plans for the future again so I anticipate the economic forecast will be a bit higher than in 2014.
U.S. economic growth in 2014 is certainly sustainable. However, the question is not sustainability but at what level of growth. A growth rate of 3% is desired and long overdue based on past recoveries.
Job growth and income growth are the most important factors for increased consumer spending and overall growth. Unfortunately, the level of job growth still lags well behind prior post World War II recoveries. The level of labor force participation is also at an unusually low level. This may imply these are structural and not cyclical problems in the labor market. That said, if Washington could remove some of its policy uncertainty, it might encourage businesses to take advantage of more investment opportunities and hiring.
Economy & Everyday Life
Consumer confidence is always a critical ingredient for improved consumer spending. Less wrangling in Washington would help. More steady job and income growth are essential. The Affordable Care Act’s effect on consumer budgets will certainly cause many consumers to readjust their spending patterns. To what extent we don’t know.
The Federal Reserve’s ability to ‘taper’ without substantially raising interest rates could also influence consumer decision making. Most economists believe consumers will be able to navigate these changes without drastically altering their spending patterns. Spending on new autos and housing will continue to play a critical role in future economic growth.
As for Europe, 2014’s economic growth will improve, but at a still very slow pace. Many of the Southern European countries still have major debt problems to overcome. They must still navigate through controlling government spending, debt problems, possible fear of deflation versus the ability to implement expansionary fiscal policy.
Many of the Emerging markets are currently dealing with capital outflow, currency problems, and current account challenges. However, some of these countries are better positioned to deal with these challenges than in 1997. China’s slower economic growth has adversely affected some of the emerging market’s exports. Rising interest rates in the U.S. is also drawing capital out of these emerging markets.
A recent survey by the National Federation of Independent Business Association identified regulation and taxes as two of their greatest concerns. If Washington could reform the current corporate and personal tax policies to be more business and consumer friendly, it would create a better growth environment. Entitlement reform and immigration legislation would also limit more looming debt problems and enhance our growth potential.
The Federal Reserve Bank tapering their bond buying program (ostensibly the same thing as printing money) is not going to have a significant effect on the GDP growth rate, but it will have a limited negative effect on the securities markets.
The decline in bank reserves will have some impact on the interest rates, causing them to go up, but not to a point of being a real threat to investments.
Economy & Everyday Life
Since the official unemployment rate is going to be still around 7 % (knowing that with the discouraged workers, actual unemployment is higher than the official) the gap between the Wall Street and the Main Street will likely to remain a reality.
As long as the unemployment rate remains high the growth in the securities market will not find its way to Main Street and the distribution of income will be getting worse (leading to a higher Gini Coefficient).
Federal government gridlock is a liability to the U.S. economy. Congress not getting anything done will have a real negative as well as psychological impact on the markets. It will take away possible positive impacts of an expansionary fiscal policy.
My concern is not for economic growth in the U.S. Barring any major policy changes, I anticipate a continued growth at or around trend (about 3%) in 2014.
I believe a lot of businesses have been sitting on the sidelines regarding future investment and hiring. We went through a period with a flurry of unpredictable changes in regulations in the finance industry, health insurance, the energy industry and in taxes. While these changes continue to occur, they are becoming more predictable, or at least ‘change’ is more expected.
I believe that many in the U.S. simply want to get on with their plans – to expand their business, to build that house, etc. Thus, some growth is going to occur in spite of change; however myopic.
Economy & Everyday Life
I don’t see much change for the average consumer. Wages will probably rise meagerly with inflation. Consumers will continue to be cautious with spending, though they will be spending more. The personal savings rate is trending downward. Durable goods spending as a percentage of GDP is slowly rising.
While the impact of the Affordable Care Act may have significant implications for the budgets of those who are self-employed, those who lose their employer insurance, and those who buy their insurance through the exchanges, it will also likely lead to higher health care premiums for those who get their insurance through their employers or to lower wage increases as companies absorb higher costs in their total compensation.
Outlook for 2015
This is an election year. It may be another year of gridlock in Congress and executive orders by the President. My crystal ball is murky with regards to the outcome of the 2014 elections. While the House will likely remain Republican controlled, the Senate could change leadership.
If the Senate changes leadership, then 2015 will likely depend on the President’s willingness to work with Republican majorities. I’m not confident that he will choose to do so. If the Senate does not change leadership, I don’t see any reason not to expect more of what we have seen in recent years. This leads me to believe that we will head into 2015 roughly the same as we came into it: GDP growth averaging around 3% and unemployment continuing to fall, but not necessarily implying great improvements in the labor market. I think inflation will pick up to average around 2%.
On the Fed side, as long as the economy continues to grow at or around trend, we will see the Fed continuing to taper while allowing rates to rise slightly later in the year. Under new leadership, recent policies of the Fed will likely continue. I don’t see major changes right away; although I am concerned on the regulatory front if Dr. Yellen flexes her new regulatory muscles.
The policy problems with the economy are not being debated nor discussed in Congress. Politically the perspective is that there is no structural problem with the economy just rogue firms: JP Morgan, Goldman Sachs, etc. These are being addressed on a case by case basis.
The Great Recession demonstrated that the problems are structural: lack of transparency over what a CDO [collateralized debt obligation] or synthetic CDO actually is, how much reserve/capital is needed to cover 'speculation' in the market, and so forth. Also there is little being done to let investors know the difference between risk (having data one can analyze) AND uncertainty (no prior information to analyze or not sufficient information to analyze) attached to exotic financial instruments.
Consequently, the policy changes introduced during the FDR era-- which structurally limited financial behavior --has not been an agenda item for Congress, this time. Therefore, it suggests that the last bubble and implosion will be followed by a new bubble and subsequent implosion.
What we can see in CA and in the northeast is a rebound in housing, which gives the appearance of 'recovery'. What we are not seeing is a significant upward swing in household income. Therefore, we have recreated the yeasty environment for a bubble which 'bets' on the rising value of a property but not on the ability of the household members' to repay the loan attached to the the property's value.
Great Depression policies lasted until 1999 when Congress repealed Glass Steagall and began inventing 'new financial instruments.’ The crash came in March 2008. Therefore I would suspect that the next crash is due, on or about, 2022.
The outlook for entrepreneurship is growing, but the improving economy has less to do with it than the 2008 Meltdown. The Recession jaded people, so they are more willing to become self-reliant and invest in their own endeavors. They know that there will never be lifelong employment, and due to the shortening of business and financial cycles, if you have a job now, you may not have it in the very near future. Therefore, people become self employed or entrepreneurial out of realistic necessity. They want control of their future.
Another trend is the part-time entrepreneur, they keep their day job for income and health insurance, yet on their own they are creating and building businesses that may supplement their current income or become a lifeboat if they lose their job/career.
I teach a few hundred graduate and undergraduate students every year. If my anecdotal evidence is any indicator, the level of interest in entrepreneurship is still quite strong, and stronger than it was a few years ago.
Whereas it is true that a poorly performing economy spurs entrepreneurial activity, it is a lagging effect. Even if the economy does improve in 2014, I predict that people will continue to look to entrepreneurship.
The outlook for new business starts in the US varies depending upon whom you talk to and what references you source. The GEM 2012 report reported significant increases in entrepreneurship globally and in the US. The GEM report reverses a trend toward declining startup activity that started in the U.S. in 2005 and persisted throughout the recent “great recession”. Reading this report and extrapolating their data would lead one to forecast a continued increase in what they refer to as Total Entrepreneurial Activity (TEA). This measure however goes beyond rates of new business starts in any particular calendar year and looks at business starts and survival in rolling 3.5 year increments.
Other studies such as by the Kaufman Foundation (the Kaufman Index of Entrepreneurial Activity) conflict with the GEM study and report actual decreases in the US level of entrepreneurship (measured by new business starts). According to the 2011 Kaufman analysis the Index shows that 0.32 percent of American adults created a business per month in 2011 – a 5.9 percent drop from 2010. The quarterly employer firm rate also remained essentially flat from 2010 to 2011 at 0.11 percent. Regarding 2012 as the unemployment rate fell in 2012, so did the incidence of new business stars. According to the annual Kauffman study the 2012 rate declined slightly from 0.32 percent of American adults per month starting businesses in 2011 to 0.30 percent in 2012.
Because of the methodologies used (and the relatively small sample for GEM). I am more inclined to agree with Kaufman’s assessment.
Considering 2014 most observers are forecasting a small to moderate increase in economic activity (GNP). Also considering the jobs numbers as well as folks leaving the US workforce my expectation is that entrepreneurial activity (measured by new business starts) will decrease in 2014. This is a continuation of the Kaufman trend line. By the way typically during periods of declining unemployment entrepreneurial rates go down as potential entrepreneurs have more economic alternatives.
Normally, entrepreneurship picks up as the economy declines and slows as it improves. But these are not normal times, and have not been since President Obama has entered office.
I teach entrepreneurship, and one measure that I have used to gage the “state of the economy” is the number of students, mostly MBA students, who sign up to take entrepreneurship classes so that they can start their own businesses – usually later in their careers, although sometimes shortly after graduation. Over the past 5 to 6 years, this number had decreased significantly. Why?
The simple answer is because of fear! One aspect of the traditional American dream is the profound belief that ‘tomorrow will be better than today.’ Under President Obama, this is no longer true. People are so afraid, that many are no longer willing to try to strike out on their own. In fact, they are so fearful and desirous of keeping their current jobs that they are not willing to do anything that might cause them to lose their current jobs. In fact, for the first time in the 40+ years that I have been teaching entrepreneurship, I have had several students tell me that they are unwilling to sign up for an entrepreneurship class because doing so might cause their current employers to question their commitment, which could lead to their being fired.
So, while pickups in economic growth usually do lead to slight decreases in entrepreneurial activity as individuals accept the new jobs that are coming available, never have I seen the level of fear associated with employment (or more specifically, the lack thereof) that I have been seeing over the past few years.
The outlook is good for start ups. The costs of starting a business are extremely low because of the ability to use outsourced technology. Start ups also are encouraged by the proliferation of accelerators and incubators. If anything, there might be too many start ups, particularly in the digital area.
The improvement in the economy is a great sign for necessity-based entrepreneurs. These are the people that lost their jobs and started a business out of survival. This is very different from opportunity-based entrepreneurs that recognized an opportunity and found a way to exploit it. As the economy improves, we can expect those necessity-based entrepreneurs to reenter the labor market, particularly if they struggled to get their business concept of the ground.
The ACA will have little effect for the large majority of people who currently receive health insurance through their (large, >50) employer, or from Medicare and Medicaid. Approximately 80% of the US population falls into this category.
For the remaining 20% of the population, the ACA will help some persons, older, sicker and low-income persons who will receive the largest subsidies to buy insurance, and hurt others such as young and healthy who will cross-subsidize the large subsidy group.
The ACA may also have some employment effects, as those who now work mainly to obtain health insurance will stop working or reduce work to gain access to income-based subsidies through the Medicaid expansions and the federal subsidies from the health insurance exchange.
Some overblown issues that are more political than important in terms of money and health:
1. The lack of provider choice in health insurance plans--choice is over rated and costly.
2. The loss of private health insurance that does not meet ACA standards--most of these insurance plans are inconsistent with the principles of insurance and are best forgotten even if there were no other options.
We may, but Venture and Angel money is also flowing. I think the outlook of E-ship is very positive in 2014. Besides access to capital, the abundance of emerging technological breakthroughs and huge needs for sustainable solutions make the opportunity for E-ship just too good to pass up.
The failure of the finance industry in 2008 has caused many people to turn to more value creating options as sources of employment. Many young people with science, tech and math backgrounds opted to pursue advances in materials science, alternative energy, biotechnology and information technology as ripe opportunities for new business creation and growth, rather than seeking employment in finance positions.
Also the Internet now provides many opportunities for potential investors to learn of new opportunities. Sites like Kickstarter have been huge in promoting this sort of matchmaking among small sources of funding and cool emerging opportunities.
I think the tenor of excitement over new ventures is palpable. Silicon Valley is humming, Boston is growing, even Albany, where we are, is bursting with start-up activity.
Some of this plays out quickly…such as Software services (Instagram, snapchat, Recyclebank) and others are taking more development time (uses of, for example, Shape Memory Alloy or ceramics materials to create new ways to develop prostheses for amputees, or for lighter weight materials in cars and planes, new mechanisms for genetic testing….so many things!)
But even for the long time horizon plays we are beginning to see exciting developments and revenue generation. The fuel cell industry, for example, is finding niche applications so that revenue generation is finally taking place. See, for example, Plug Power, Inc. Tesla is selling cars. Infrastructural changes are occurring to allow these changeovers in our energy sector, meaning also that companies who are building infrastructure are getting funded and beginning to thrive.
Economic recoveries are more favorable for new start-ups, but the pace of new entry into entrepreneurship increases only very modestly. On the other hand, younger entrepreneurs find it easier to enter during booms, while people who graduate during recessions may be delayed as much as 10 years or more before their entrepreneurship rate equals that of people graduating in normal labor markets.
Availability of venture capital has been a significant problem for new start-ups in this slow recovery. There are signs that may be changing, but until investors feel the U.S. is back to its previous 3% long-term growth rate of 3%, investors are going to be hesitant to put their money at risk. Outside of IT, venture capital will still be hard to attract.
Investment Banks have had a good year, but stock prices for Citi, Morgan Stanley, and Goldman Sachs are still well below their pre-recession levels, suggesting their own investors are not as confident of their revenue streams as in the past. Bank of America (Merrill Lynch) is also well below its pre-recession levels. The U.S. seems to be stuck in low expectations, not good for people needing to attract capital for risky projects.
Overall, 2014 looks like more of the same slow rate of new firm start-ups that have characterized the past years of the recovery.
There are always undiscovered opportunities for budding entrepreneurs. I believe, however, most people still view working for someone else as a 'safe harbor' and not start enterprises of their own.
An improving economy sometimes rides the back of improving efficiencies and not necessarily an increasing job pool.
Often, people in transition from being down-sized, divorced or from a closing company, consider the sometimes lonesome road of entrepreneurship.
Most times there is an immediate positive economic impact from emerging entrepreneurs. They often subcontract out work they can't do themselves, borrow money rather than use a stock pile of money often found in large companies and often have a growth orientation.
Information technology of all sorts allows small, innovative players to develop technologies and applications that move from birth to maturity at extremely fast rates of speed.
The recession drove many people to consider starting their own business - people who otherwise might not do so. As the economy improves, two things are likely to happen. Some of these would-be entrepreneurs will abandon the dream and accept employment. Others however, just might find that the improving economy will generate enough sales for their fledging businesses to survive.
I am optimistic that the number of new entrepreneurs will continue to grow. Business school students' scores on tests of ‘Entrepreneurial Intent,’ both in the U.S. and in other countries, have been very high in studies done in the past two years. That is, more and more business students are saying that they intend to start something - and they often do not know what - within the next five years.
The outlook is good due to the recent recession, which made a lot of people realize nothing was secure. Quite a few people, perhaps out of necessity, created companies between 2009-2014.
Technology is playing a bigger role than ever before. eCommerce is easy and will continue to grow into niche markets. Mobile will continue with games and ecommerce/payment applications. Cloud applications -- a la Dropbox – will continue to appear, and photo and video applications will soar. There are too many photos and videos uploaded to the Internet everyday to ignore. Health and fitness solutions via smartphone platform might emerge as well (e.g. snap in an accessory, take your blood pressure; snap in another accessory, take your heart rate; and so on).
However, I don't think this next time period will be a boon for I-bankers or VC's. I see crowd funding and especially crowd equity funding taking off in 2014-2015. Why go to I-bankers and VC's and get $1 million and have to give up 25% of company when I can crowd equity fund, raise same amount for only 5-10% of equity.
The actual enrollment in the public exchanges associated with the ACA will likely be less than was anticipated. It also appears that the profile of those enrolling is not what had been desired by the planners – that is not enough young healthy people paying rates that are far in excess of the actuarial risk. As a result it is unclear that the prices for products offered through the public exchange will be sustainable. It further appears that the Medicaid enrollment of individuals who were previously eligible but not enrolled (EBNE) is growing – this will pose increased burdens on state budgets.
In general the ACA likely increases the expenditures in health care – relying on government transfer payments to support this. Our government is broke. The ACA does not reduce expenditures and best evidence suggests that it increases the rate of health care expenditures by 1.5% – 2%. The ability of our country to continue down this undisciplined path is questionable to say the least.
The National Association of Colleges & Employers (NACE) provides an annual outlook report for college grads and the feedback they're getting from employers is that they are optimistic about the job market for graduates in 2014. In fact, this year they expect college hiring to increase by 7.8% which is obviously good news and makes sense given the fact that we have seen slow but steady growth in the job market and the number of postings on the alumni side. Even with the corporate uncertainty looming around the Affordable Care Act, employers seem to be continuing to hire for full time positions. We've also seen an increase in the number of temp to hire positions being advertised and the number of alumni converting those positions to full time.
According to NACE, employers are most interested in business, engineering, computer/information science, sciences, and communications disciplines. On the alumni side we certainly see a steady high demand for computer science/information science grads as well as those with engineering and science backgrounds.
The employment market for graduates of the 2014 will find a moderate increase in employment opportunities over 2013.
2014 graduates that complete the following are likely to have at least one if not multiple offers upon graduation:
• completed a credit bearing internship, co-op, clinical or practicum experience will have a significant advantage over those graduates that did not intentionally gain relevant supervised experience
• began an aggressive job search campaign as early as six months prior to graduation will likely have refined their interview skills and polished their professional attire
• commit to relocation where the specific opportunity exists.
Today’s students must be willing to go where the opportunities are instead of limiting themselves to a small geographical radius. Especially during the last year of college students can avail themselves to campus hosted employer information sessions, interviews with recruiters through their university career center and attend multiple job fairs to network and follow up with hiring companies.
For younger baby boomers who are more than 10 years away from retirement, the outlook could be positive. The Federal Reserve reported this week that household wealth has reached an all-time high, thanks to high stock prices and increasing home values. This means that pre-retirees have recovered from the crash of 2008.
For baby boomers just a few years away from retirement, however, the boost in wealth may not be enough. Many plan on working longer than they originally planned. While this in part due to the economic climate, it is also due to the lack of saving, which is a cultural mindset.
One of the big concerns for those who are nearing retirement is interest rates. Conventional wisdom tells us that as workers get older, they should move their savings away from equities and into ‘safe’ investments such as bonds. However, this is hardly feasible with interest rates at an all-time low.
With such low returns and the fact that more and more people will live to be 100, you will likely see a move away from this traditional view of investing and more individuals will keep money or allocate more money into higher-return investments. Stocks will be viewed as a necessary part of investments even as people retire. After all, if an individual retires at 65 and lives to be 100, that is 35 years of potential investment opportunity.
I think the stock market will return about 10 percent in 2014. I think rising long term interest rates will keep bond investors on the sidelines until rates stabilize.
I remain hopeful, but certainly less that sure about this coming year. The stock market outlook is complicated by Washington's difficulties as well as Federal Reserve Policy. I want to say that the market will end the year (2014) in strong positive territory, but it can be derailed on several counts.
The first is the reaction to Federal Reserve "so called" tightening. What that actually means is that the Fed will soon begin tapering their quantitative easing policy. That should lead interest rates to go up. When interest rates go up bond prices fall. It is this issue not low interest rates that have truly kept investors out of bonds and in favor of stocks. However, stocks are also in favor because of the global growth potential and the seeming signs of growth in the US economy despite the drag created by a poor fiscal policy response by the US government and operating balanced budget laws at the state and local levels.
That is, stocks can respond to the substitution effect. When interest rates rise bond prices fall, making bonds more attractive compared to stocks (this is a ceteris paribus argument, that is if nothing else is changing). Alternatively if the economy can grow more robustly which I believe it can and will then stocks will rise on their own merit (rising intrinsic values).
In principal the Fed will only taper when they are convinced things are improving and therefore, the market can rise on economic growth concerns. The larger problem is a dysfunctional Congress that threatens to derail the growth possibilities. The budget agreement is at least a step in the right direction, but the possibilities of silly fights over say the debt limit can lead to not so silly ramifications.
The stock market should lead the economy and we hope that lead is up. I am not a guru concerning what sectors will do best, but growth creates particular demand for energy and finance. I think both of those industries are likely to be leaders in the market, meaning returns around 25-50 percent greater than the average.
I expect the stock market to end 2014 about 10% higher, but it’s going to be a bumpy ride. This will especially be the case over the early part of year when the stock market is likely to see both a pull back and a lot of volatility as the Fed begins tapering its $85 billion per month purchase of Treasuries and mortgages and as our politicians are again faced with having to raise the debt ceiling.
The good news is the US economy is picking up steam. So, once the market has fully digested the Fed tapering and the economic numbers continue to improve, we are like to see a robust stock market. US economic growth will also be the tide that lifts other global economic boats including Europe and Emerging Markets, and will make for a softer landing in China.
Furthermore, companies are still sitting on excess cash which has predominantly been deployed this year through share buybacks and increased dividends. Both policies, along with the Fed’s easy money, have been supported stocks big rally in 2013. Share buybacks, however, are like the cost cutting measures which came on the heels of the financial crisis. They only improve share prices on a short-term or temporary basis. To continue share price increases, companies will increasingly have to use cash to increase productivity by hiring and expanding, adding more fuel to the US economic growth.
As hiring and the economy improve, so will retail investor’s appetite for stocks; an appetite that was severely damaged by the Great Recession. As the economy improves so will consumer confidence. And, as the Fed tapers, interest rates will rise (hopefully slowly) making bond prices fall and decreasing bonds attractiveness. Both trends will increase retail investor’s interest in riskier assets including stocks.
The biggest threat to my prediction is twofold. First, the stock market is already fairly valued to slightly expensive, limiting the potential upside. Second, institutional investors are already very bullish, meaning they are already heavily weighting stocks. As a result, if retail investors do not enter the stock market in a meaningful fashion, the 2014 markets will likely be flat.
My 2014 best performing sector picks are energy and industrial metals, which are also two of the worst performing sectors in 2013. I also like US industrial companies. Increasing US and the following global economic growth will buoy these sectors. Indeed, China is currently ramping up purchases of industrial metals such as copper, even as copper prices have been falling dramatically. If my predictions of increased hiring and expansion come true, these sectors will also likely outperform. Plus, these sectors are among the most attractively priced at this time.
I also am starting to like emerging market stocks, which typically outperform along with commodity stocks. But, these countries carry a lot of risk right now. We need the mess in the US with tapering and the debt ceiling to have cleared, before emerging markets will be interesting for more than a small bet.
The current unemployment rate is 7.3 (as of October 2013 according to the Bureau of Labor Statistics) which represents a continued decline since the end of the recession in 2009.
Because of the matching decline in the civilian labor force over the same time period (discouraged worker effect), this does not necessarily reflect an improvement in the labor market given the steady decline in labor force participation rates since 2009. As of October 2013 the labor force participation rate was 62.8%. Back in October of 2009 it was 65%. The Congressional Budget Office in its 2013 Economic Outlook Report to 2023 predicts steady unemployment of above 7% to continue into 2014 after 2015. This would be consistent with business cycle predictions. In order to achieve reduced employment that is not driven by reductions in the labor force participation rate, we would need economic stimulus policies, like bond financing fiscal stimulus. The tradeoff is higher debt which is politically unacceptable but perhaps necessary to boost the economy.
Job vacancies have actually been on the rise since 2009 suggesting despite continued high unemployment employers are not filling positions. There is the skills mismatch leading to job vacancies and high unemployment rates stemming from a structural problem. It is a problem colleges and universities are facing because of pressure from employers who are seeking better screening tools of college grads for skills assessment. More and more employers are looking for signals of skills from college graduates. Major and GPA have come to mean little given oversupply and competition in the world of education to produce marketable students based on these criteria. We are going to start seeing more colleges offering this SAT-like Collegiate Learning Assessment (CLA), which is an objective indicator of skills upon graduation from college for employers to use as an additional screening tool.
Sluggish growth. Declining unemployment but nothing dramatic.
Declining unemployment but nothing dramatic.
Despite the above-expected 3.8% actual growth of the third quarter of 2013, the annual growth in 2014 is expected to be similar to 2013 with a slight improvement towards the end of the year. As the economy drags out of fiscal stress around the second half of 2014, job growth should be stronger which should speed up the recovery process.
Unemployment rate is expected to fall from its current level of 7% to somewhere between 6.5% to 6.7%, constrained by the expected increase in non-farm payrolls at a rate of 205,000 per month by the end of 2014. Inflation rate is expected to increase during 2014 but it will not be too high somewhere around 2.5%, given the underperformed economy. The Fed would remain growth-friendly towards 2014 and therefore short-term interest rates are expected to remain near zero. Finally, in response to the expansion of the global economy, housing prices will increase between 4% and 5% in 2014.
There is a close link between the status of the labor market and the Fed Quantitative Easing program. The Fed is watching the labor market closely and will respond in the right time to the improvement in the labor market by tapering the QE. The FOMC made it clear that the short-term interest rate would remain in the range of 0 to 0.25% as long as unemployment rate is not falling below its objective of 6.5%.
However, what is quite puzzling is that the decline in unemployment rate in 2013 was not a result of a robust improvement in the economy as much as a result of less labor participation. With the continued recovery of the economy through 2014, the drop in the unemployment would be more of a result of job creation rather than less labor participation. It is expected that the unemployment rate would drop from its current 7% level to somewhere between 6.5% to 6.7% during 2014. The drop in the unemployment rate is constrained by the expected increase in non-farm payrolls at a rate of 205,000 per month by the end of 2014. The Fed need to keep an eye on both the unemployment rate as well as the labor participation rate before tapering the Quantitative Easing program is set to happen.
Federal Reserve Policy
With the current underperformance of the economy, it is expected that the Fed will not taper any time soon. The Fed will continue buying the $85 billion worth of bonds until at least the end of 2014. The short-term interest rate is then expected to remain around zero until the end of 2014. The Fed will start the tapering process in response to the status of the economy, and more specifically the labor market. With the expected non-farm payrolls reaching 205,000 per month by the end of 2014, more tightening in the labor market conditions is expected, signaling a delay to the end of the Fed’s quantitative easing.
Interest Rates & Real Estate
The long-term interest rate is a global market driven variable. Assuming that China will continue growing, Europe will not go into a recession soon, and U.S inflation rate will be up but not too high, the global demand for credit is expected to rise leading to an increase in the long-term interest rate somehow during the end of 2014. It is expected that mortgage rates will increase little above 5% in 2014, which would in turn result in a drop in mortgage refinancing activity. With the expected continued recovery of the economy, the number of home purchased is expected to increase fueling a rise in home prices between 4% and 5% in 2014.
I think 2014 may be a transitional year in the recovery from the global financial crisis of 2008-2009 as we return to a 3% annual rate of growth in Real GDP. Private sector growth from consumer spending, the housing recovery, and business investment plus the weak but steady recovery in state and local spending should offset the continued decline in Federal government spending. Unfortunately, the economy will once again be heavily influenced by the budget and debt shenanigans in D.C. A budget deal to substitute a more rational spending plan for the sequester and that continues to make progress on long term debt would do wonders for economic growth. But I am not holding my breath!
I think the unemployment should continue to trend slowly downwards certainly to 6.5% and maybe even to 6.0% by the end of 2014. Real GDP growth at 3% for the whole year should bring this about.
Federal Reserve Policy
If my forecast for growth and the unemployment rate holds, then we should see the Fed taper and then end the long term bond purchases in its quantitative easing policy. But the drop in unemployment and any inflationary pressure that results is unlikely to change the zero target for the Fed Funds rate. So to a lesser but still significant degree the economy will still be on life support from the Fed in 2014.
Interest Rates & Real Estate
Mortgage rates should head up as a result of stronger growth but the demand for mortgages seems very sensitive to rate movements and less responsive than in the past to income growth so the change in rates might not be very remarkable.
I am very bullish on the economy and have been for a few years. I'm waiting for the economy to bust out. The problem, however, is that everyone else is just itching for the next recession so they can say ‘See, I knew another recession was heading!’ If companies start hiring, then the economy will moving into another gear very quickly...but, firms aren't hiring (and haven't been for years!) I hope (hope hope hope) that unemployment will push down another 50 - 80 basis points.
Federal Reserve Policy
The Fed has already stated that it's not going to make a move until it sees improvements in the unemployment rate. When the Fed hinted that it might make a move, the market took a dive. This is one of the issues that has always puzzled me (although it shouldn't...) -- the idea that the Fed (or monetary policy) doesn't work or is in-consequential AND the fact that the market pays really close attention to the Fed and gets scared when it looks like the Fed might tighten money and increase rates. So, I guess, the Fed does matter (I've always known that it did)!
The biggest concern with the Fed is inflation -- easy money usually means inflationary issues. However, inflation is at 1.5% or so. The Fed can continue to have an easy money policy as long as inflation doesn't tick upwards of 2.5 - 3.5%. If inflation hits 3.5% then I think the Fed will have to tighten money (and very quickly) and the market will respond dramatically.
Interest Rates & Real Estate
Banks haven't been selling mortgages...they don't need to. Most banks have been quite happy purchasing distressed assets from other banks without initiating new mortgages. The rates have been terrific and housing is now out of the cellar. I see mortgage rates moving a little north because banks are going to continue to be tight with their funds.
These markets are primed for a big correction. I just did a valuation of Disney and, by my calculations, it is overpriced by, perhaps, $30. 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 (so it all circles back around).
I think it will be more of the same. Serious reform in the entitlements seems unlikely given the political situation and likewise for any significant control on spending. Budget/shutdown things will be resolved, but without any fundamental change. My view is that the policy environment is highly uncertain and largely negative for many businesses and industries. Health care reform, energy regulation, and financial market regulation are negative value propositions, making productivity lower and limiting investment. This is unlikely to change for 2014. Uncertainty regarding future tax burdens and inflation, with the potential prospect of these turning out badly, has similar effects. Again, these I don’t’ think will be resolved in 2014.
The unemployment rate will likely drift slowly downward and probably go just below 7% in 2014.
Federal Reserve Policy
I doubt the attitude of the Fed will change much; there still is this view that more bond/security buying will invigorate the economy. I don’t see it. Most of the excess reserves the Fed has created are sitting in banks’ vaults. It’s possible the Fed may slow its buying program somewhat, but as long as the above attitude persists (which I think it will), monetary policy will tend to be expansionary.
Unfortunately, much more of the same. There is still a general lack of confidence in the economy. Consumers and business leaders are still uncertain about the future and therefore, spending and investment is lagging behind what is necessary to get us on a faster growth path. The political stalemates in Washington are not helping.
I believe unemployment rates will continue to fall slowly but not reach the levels we became accustomed to a decade earlier. There is still a lot of long-term structural unemployment that will take time to work out of the system.
Federal Reserve Policy
With a new leader, this is hard to say. At some point, the Fed will put the brakes on their expansionary policies but when and by how much is still not clear. Again, I think it is a matter of confidence - does the Board of Governors have enough confidence in the economy to make the turn? It will be an interesting year!
Interest Rates & Real Estate
Mortgage rates are likely to rise as they are now at historical lows. How much they will go up will depend on Fed policy.
I look for unemployment to fall below 7% during 2014. It is currently 7.3% and trending gradually downward.
Federal Reserve Policy
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.
Interest Rates & Real Estate
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 US history. 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.
The U.S. economy seems to be in for a long drawn-out secular stagnation. Consequently, we are likely to see more of the same by way of lackluster economic performance (sluggish unemployment and low inflation). Since the European Union is also looking at tepid growth and the developing world waits for the U.S. to recover, continued global stagnation is almost a certainty.
We are not likely to see an unemployment rate much lower than what has been achieved thus far; in other words, it is highly unlikely that the unemployment rate will dip below 7% any time soon. This is as might be expected with Congress set on a path of budget restraint (austerity) and talks of an imminent Fed taper.
Federal Reserve Policy
The Fed under Janet Yellen is likely to favor a gradual taper rather than an abrupt move in that direction. However, inflation control will remain a top priority for the Fed despite heartening (twin mandate) talk about reducing unemployment to a tolerable level. The unsavory reality is that the global economy currently faces a savings glut, sizeable unused productive capacity and stagnant wages; these conditions are not likely to disappear by 2014.
Interest Rates & Real Estate
It is likely that mortgage rates will go up only slightly in anticipation of inflation and a slight improvement in housing demand. However, most financial firms seem resigned to the idea of low interest rates far into the future.
I expect the U.S. unemployment rate to continue its very slow pace of reduction into 2014. I doubt that job creation will be very strong in 2014, perhaps just a little more than working-age population growth. There seem to be too many economic headwinds for business firms to have the confidence to go on a hiring spree any time soon. I'm more optimistic in the longer term, though.
I believe that politics is currently a huge weight on the economy. Uncertainty over the affordable care act, calls for increases in the minimum wage, and increased regulation are all disincentives to hiring and investing.
The overbearing system of taxes needs to be scrapped. I am a believer in a flat income tax or a national sales tax. Our economic system will collapse if a large proportion of the population believes that they can vote for benefits for themselves and not be burdened with the taxes that pay for those benefits.
Interest Rates & Real Estate
Mortgage rates will remain low until the Fed changes its policies. I don’t think the Fed will change its policies soon. A weak holiday retail season reflects the mood of the country.
The housing market is going through a strange phase right now, and probably will continue to do so in 2014. Foreclosures are way down in several metro areas compared to this point last year, and that trend is expected to continue. In fact, house price movements have been very strong in several metro markets.
Still, the after effects of the housing crisis of 2007-2012 have caused some strange dynamics to occur. Many institutional investors have come and scooped up single family foreclosures and short sales with cash transactions, somewhat transforming the so-called "shadow market" of single-family non-owner occupied rental properties. This has had ripple effects on the housing market that will likely extend into 2014.
One of the things that we have learned is that cash is king...high LTV buyers are not winning out on their offers if the home is median priced or higher. That trend might also be seeping into the lower end as well. This has shortened the marketing time of a housing transaction, but will be creating affordability pressures nonetheless for those entering the first-time homebuyer phase.
The credit markets/lenders are not helping matters either. They have done a total 180 from 2006 rules on underwriting and quality control, effectively lengthening the time it takes to close a loan. This will dampen some of the steam that the housing market has been gathering, although many would argue that might be a good thing.
Another aspect of quality control that has dampened some of the momentum has been the extra regulations put on the appraisal industry. Tighter control and the presence of appraisal management companies serving as review appraisers is well meaning, but slows down the process somewhat and creates a tendency to have properties underappraised (or at least have appraisals come lower than list prices).
One other wild card is the housing markets in some of the more remote areas of the country that are currently experiencing a boom in extracted resources. The Bakken reserve in North Dakota comes to mind. House prices are rising there, and the supply cannot keep up with demand, from the last that I heard. As someone that 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.
Two of my former employers, Fannie Mae and Freddie Mac, are also going to be in the news in 2014. The fate of the two organizations has been in question quite a bit since the 2008 conservatorship. I am hearing a lot of influential talk that says they will not be around any more, and yet apparently the last year has been very good to them. Stay tuned on that one.
It would be hard to believe that interest rates could get as low as they got at the first of this year, but unfortunately I do not have a crystal ball on that aspect.
Slow growth of real GDP, similar to that of recent years (i.e., stagnation), and slow inflation, perhaps slower than in 2013. Deflation is possible, but not likely.
Slightly higher official (U-3) unemployment rates (due to slow growth of real GDP), with U-6 rising more.
Federal Reserve Policy
The Fed is likely to continue with the same policies as those in 2013, especially since the sequester and other government spending cut-backs are going to continue, while private domestic fixed investment is unlikely to recover significantly. It aims to prevent actual deflation while it hopes that unemployment rates will fall more.
Interest Rates & Real Estate
Mortgage rates should stay about the same (for 30-year fixed rates).
The safe prediction is continued sluggish growth. Incomes for most Americans are not rising and thus consumption expenditures should stay subdued. The wild card is business and housing investment. If the economy does expand more quickly than expected, it will be because of an unexpected increase in business investment. The government will provide very little help to the economy, and indeed will probably take measures that impede recovery.
I expect unemployment rates to continue to hover around 7%.
Interest Rates & Real Estate
I expect mortgage rates to stay about the same, as the Fed will delay its long-awaited program to reduce its purchases in the bond markets. If unemployment drops down to the 6.5% range, then I expect mortgage rates to rise because of a more restrictive monetary policy by the Fed.
I wish I had a crystal ball. I am not sure, but most economic indicators seem to point towards some sort of recovery, albeit not as fast as we would all hope for.
I think employment will keep on increasing and, although not as fast as employment, unemployment will probably drop down further. It depends on how many discouraged workers go back to searching for jobs.
Federal Reserve Policy
I think 2013 has probably seen the end of quantitative easing, but my suspicion is that it will want to keep interest rates down to continue to stimulate consumption, investment and aggregate demand.
My best guess is that we will continue to muddle through, slowly climbing out of the deep hole that the Great Recession left us in but remaining a long way from a full recovery.
Slow growth, roughly 2% annual.
Economy & Everyday Life
More and more people will realize that their employer provided insurance plans are going to be changed dramatically. I think that a lot of employers are going to consider only insuring workers, and not spouses or dependents. Once the spouses and dependents are “dumped” into the individual market, there will be a lot of unhappiness.
Europe: slower growth than in the U.S., roughly 1-1.5% annual. Emerging Markets: growth roughly 3-4%.
Congress cannot get anything done because of the way the Founders devised the system. The President is not a dictator, as much as the current occupant wishes he were. The President is not a prime minister with a ruling majority in Congress and therefore able to pass things that way. The House is controlled by a different party than the Senate and the White House. The two parties have fundamentally different views about how to modify the Obamacare package. Since Obama can veto anything he does not want changed, then the House is stymied. The economy will muddle along because fundamentally Obamacare is income redistribution. The implied tax rates are thus quite distortionary to work effort.
Outlook for 2015
If 2014 elections are similar to 2010, then I see the GOP taking an unprecedentedly large number of House seats, like 260+. I also see them taking control of the Senate. They will use the nuclear option to pass legislation repealing Obamacare or parts of it. However Obama could veto the legislation, and I do not see the Senate being able to override the veto. Thus I can see band-aids in 2015.
If the 2014 elections are mixed, then it will be muddle through until the 2016 elections.
In almost all respects, unless Obama actually agrees to modify his signature legislation, which I do not see, the economy will slow grow until he leaves office.
The economic forecast depends on two highly uncertain events: the end of Quantitative Easing and China’s growth. The end of QE and its possible reversal will cause interest rates to rise. How much they rise and the effects on the stock market and the housing market will play important roles. The equity, bond and housing markets may now be in bubble mode and if the bubbles burst, the U.S. economy will once again weaken. Many observers think the Chinese housing market is a bubble whose bursting could cause negative economic ripples across the globe. Absent these negative events, I expect the economy to plod along with slow growth and unemployment in the 6-7 % range.
Economy & Everyday Life
Savers and retirees might once again see increases in interest rates for savings deposits and bonds. People looking to buy real estate can expect higher mortgage rates.
Given the budget compromise that is currently discussed, I don’t think Congress can help the recovery even if it gets something done. The national debt is too high and it will grow. The negative effects of Obamacare will linger. Part-time employment and a stubbornly high unemployment rate will become the norm. The United States will experience Amerisclerosis—a hardening of its economic arteries similar to Eurosclerosis.
Outlook for 2015
Since Congress and the President have failed to deal with our long-term problems and merely continue to 'kick the can down the road,' expect more problems down the road.
Outlook, of course, depends upon the country. Generally, however, the economic outlook for emerging market countries is good for 2014. If anything, growth in those countries will be constrained by lagging growth in the U.S. and Europe rather than the reverse.
I spend most of my time working with agri-food industry issues, and the economic outlook remains quite positive, in the U.S. and in emerging markets.
From an emerging market perspective, some of the most interesting things happening are in various countries in Sub-Sarahan Africa. As an example of economic growth from western Africa, Ghana’s GDP growth was 4.4 percent in 2009, 7.7 percent in 2010, 14.4 percent in 2011, 7.0 percent in 2012, and is projected to 7.2 percent in 2013. Economic growth in parts of Africa over the last 5 years has outclassed other markets, including Asia, and the rising middle class has caused an ever increasing demand for more and better quality foods, energy, water, infrastructure, housing, and sanitation.
In the short-term the European Union needs to reach a speedy solution to the bank restructuring and regulation issues. Banks need to be recapitalized and form proper expectations about the forthcoming changes in the regulatory environment before they can fully reengage in lending practices. Fiscal policy will not be supportive of growth and domestic consumption will be the only promising source of economic growth in 2014 in Europe unless Fed and ECB monetary policies work to reinforce a weakening of the Euro which would lead to improved export prospects for the Eurozone.
In the medium-term the successful conclusion of the Transatlantic Trade and Investment Partnership talks hold out promise for trade and foreign direct investment upturns in both the US and EU economies.
It is hard to say, as actions of the Fed are path-dependent on the data.
Federal Reserve Policy
The change in membership of the Federal Open Market Committee is likely to be important given the main doves Rosengren, Evans, and Bernanke leaving.
Interest Rates & Real Estate
The Fed will keep rates at ZNB for a long time. The yield curve may rise, and if it does the Federal Open Market Committee may act to push it down as it did in September by not tapering.
The current recovery should continue at the same (rather slow) pace or perhaps a bit better.
It will continue declining gradually, perhaps to 6.2% - 6.4%, barring any shocks to the economy.
Federal Reserve Policy
The Fed will taper off its bond buying.
For the US, the recovery is continuing very slowly. I expect this to continue in 2014, though I see potential for things to get worse. Right now, banks are holding very high excess reserves (as a result of Quantitative Easing). If they start lending these out in a significant way, that would likely spark inflation – which is already near the Fed’s target of 2%. The Fed would then be given a choice. It could allow heightened inflation to get the temporary employment gains that come along with it (as prices run ahead of wages, improving the profitability of hiring). Or, it could decide to treat inflation as its primary target and tighten monetary policy in a significant way – choking off the recovery. Neither of these is good. I see no signs that the excess reserves will leave banks in any big way – but the depends a lot of the confidence of bankers, which can change quickly and unpredictably.
Economy & Everyday Life
My guess is that things won’t change much, on average, though the implementation of Obamacare may have effects on workers that we’ve not yet seen. I expect that, on average, medical insurance premiums are going to rise – which will tend to diminish income that can be spent on other things, though there are certainly exceptions.
I expect Europe to continue struggling with Greece’s debt problems – so any recovery there will likely continue to be slow. Unlike here, though, I don’t see any lurking problem with potential inflation yet.
The real trouble isn’t that Congress can’t get anything done. If they actually didn’t do anything, they’d be very predictable, and that would make long-range planning and investment relatively easier. The problem is that the political contentiousness is leading to policy being unpredictable – which makes long-range planning and investment very risky. As a result, business investment has been muted. This doesn’t mean the economy can’t 'recover' – but it does mean that we’ll have lower long-run growth. Some evidence of this is that normally there is a 'bounce-back' after a recession, but in this case there hasn’t been.
Outlook for 2015
A lot depends on the elections. If the elections reinforce the current structure of Congress which is creating unpredictable policy, then I expect that we’ll be more or less where we are right now – expecting the slow recovery to continue, but with lurking threats caused by Federal Reserve policy. If elections create a more coherent, predictable system, then I expect investment to increase as long as the specific policy direction doesn’t create too much uncertainty about the future.
I expect slow growth in 2014.
Unemployment will continue it's very slow decline. Labor Force participation will pick up, perhaps adding a few tenths of a percentage point increase in unemployment.
Federal Reserve Policy
Janet Yellen will be confirmed. The Fed will continue to accommodate economic growth. When unemployment falls to around 6 percent, the Fed will begin unwinding quantitative easing.
Our 2014 economic outlook is for stronger real GDP growth and faster employment growth, which will benefit workers directly and family finances, in turn. It is likely to be a bit choppy in the transition, however, with the ACA—the health care legislation—kicking in early in the year and affecting discretionary spending prospects for some of those uninsured (who now must buy insurance or pay the tax), the Fed’s tapering move affecting the financial markets and higher credit costs and potentially a tad higher inflation—higher shipping costs (new regs), expected higher gasoline prices (modestly) again, and higher food prices (modestly). But overall, the improvement in Europe and the absence of some 2013 drags on the economy will help. This should spill-over to better consumer fundamentals—albeit modestly.
I think U.S. equities will earn between 5 and 10 percent, international equities will outperform the U.S., and emerging markets (particularly Brazil) will outperform all. They are way undervalued and world growth is improving.
Politics will continue to be contentious, particularly as the mid-term elections approach. But I suspect both parties will seek to avoid the high drama and cliffhangers to which they have subjected the country in the last few years. This would suggest that there will be little significant policy changes adopted in the absence of some overwhelming public demand for specific action. Thus Congress probably will not accomplish much of substance.
My guess is that the economy will be largely left to its own devices, with Congress and the president providing little in the way stimulus or other assistance. In some ways, the lack of major policy initiatives will provide greater certainty for the business community than they have enjoyed in recent years. The downside is that there will probably be no political appetite to tackle tax reform.
I suspect most mainstream Republican leaders hope that their party’s candidates will be sufficiently disciplined to keep their messages focused on taxes and the economy (and Obamacare if it still proves unpopular). They will be unhappy if Tea Party backed nominees divert public attention to social issues and muddle their preferred themes. Democrats may find themselves pushed to the left by their own populist nominees, but pushing a higher minimum wage holds less risk than touting increasingly unpopular social issues.
I think 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.
I am not sure about any big-name IPO for 2014 unless the two Canadian hotel brands, Four Seasons and Fairmont Hotels will consider to return to the public. However, these companies do not have the diverse portfolio as HLT has. If the travel market continues its current growth and no major shocks affecting the economic system, lodging company with sound business model and growth potential will continue to attract the interest of the investors.
Blackstone appears to be on a roll with the Extended Stay America and SeaWorld IPOs this year. There is still talk of LaQuinta Inns and Suites being offered to the market rather than through a private sale and I imagine they will watch, with interest, the market activity following the Hilton IPO this week. If it mirrors anything like the demand for Extended Stay America in the early days, they may not wait too long! In conclusion, can’t see much rivaling the 2013 list of big name IPOs both in and outside of the hospitality sectors…need some time to catch our breath!
The price of natural gas in the last three months of 2013 averaged around $3.85 per one million BTU, representing an increase over its level at the beginning of the year. This price increase is expected to continue in 2014 due to greater demand/ supply growth imbalance, higher economic growth, greater push toward cleaner energy and colder temperature. The price should increase by between 20-50 cents on average in 2014 since the increase in demand has been exceeding the increase in supply by more than one bcf/day, as economic growth in the United States will increase modestly and there is a push for clean energy fuels. Moreover, the projected colder temperature in 2013 and 2014 than the record-warm temperature in 2012 should bring higher natural gas prices in those two years than in 2012.
However, the increase in demand (incremental demand) will continue to exceed the increase in supply in the next five years. This differential predicts steady increases but without spikes in natural gas prices. The wild card here is the speed of conversion of transportation fuels from crude oil to natural gas. Gas-to-liquids and compressed natural gas are predicted to absorb about 3Bcf/day of the increase in demand. There are now companies that are now building the U.S. natural gas highway to be used particularly for the transit buses and trucks.
In addition to the domestic demand driver coming from changes in the domestic fundamentals, a much bigger driver is expected to come from the already approved natural gas export terminals such as Cheniere Energy’s. The export demand may research 5.5 bcf/day in five years. This should be another push to natural gas prices over those years. China may play a similar role in driving natural gas prices up in the coming years as it has done with the crude oil prices over the last decade. China is building its power generation infrastructure and its power demand is expected to increase by ten times by 2035. Since natural gas is currently about 2% in the power fuel mix and there is a strong popular discontent with pollution, there should be a strong import demand for U.S. natural gas (LNG) coming from China.
The shale natural gas revolution is real and a game-changer for the country’s energy cost. It has been felt at both the firm and household levels. It has also enhanced energy security as reserves have increased significantly. Natural gas imports have been going down steadily. They should lead to improvements in the current account of the balance of payments.
Deregulations and low retail natural gas prices have also lowered the power/gas bill that the U.S. household pays in the last few. There are also increases in the average American household income coming from production from newly discovered shale oil and natural gas reserves. There is an estimate that this increase in new production added $1,200 to the average household income last year. These price and production effects should offset a large part of the sequestration and higher payroll tax impact on the U.S. economy.
In conclusion, people have been happy with the current oil prices. They should also be happy with natural gas prices for the next five years.
Given that the US economy is steadily gaining steam, and many of the emerging economies are doing well, demand for gasoline is expected to increase. However, barring adverse political events that can increase uncertainty, I do not expect gas prices to cross the $4 per gallon mark by much. This is because of the lower US supply of natural gas prices, and it's energy saving regulations.
Even though some modest energy saving practices are slowly taking shape, I do not see any [domestic energy] revolution. Admittedly, regulations in favor of low mileage cars, emphasis on wind/solar energy, etc., are having some impact. The lower natural gas prices are having sobering effects on gas prices. However, a stable political climate internationally is very much needed to keep the oil market under control. US supply of sweet crude, Alaskan oil and natural gas and a slow economy has kept the oil prices low during last 2/3 years. The overall economy is clearly showing signs of steady growth in the immediate future that will invariably put pressure on gas prices, but not by much due to a multitude of socio-political and economic factors.
As more and more Boomers reach their 'full retirement age' for Social Security, a pressing issue becomes how to arrange their income during retirement, rather than how to save for retirement. Should you make withdrawals from regular 401(k) accounts before Roth accounts? Should you rely on minimum required distributions, an equal percentage withdrawal, or annuitize retirement saving? What are the tax implications of any retirement income structuring decision? How these questions are answered can make a big difference in the quality of retirement experienced by many households.
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