As 2014 winds down, we look ahead to next year, filled with hope for a stronger economy. In many ways, 2014 has been a year of bad news around the globe – Ebola, aggressive action by the Islamic State and Russia, and racial unrest here in the U.S. – which has led to a certain amount of pessimism. However, despite this context, there has been some good economic news sprinkled in.
A number of economists are forecasting modest growth in 2015. The Organization for Economic Cooperation and Development (OECD), a French think tank, projects 3.1 percent growth for the United States in 2015. While this is well ahead of Western Europe and Japan, who are again expected to struggle, it lags behind the overall global projection for GDP growth.
Third-quarter growth of 3.5 percent plus an upward revision of second-quarter growth would seem to indicate that economic momentum is getting back on track. Economists expect growth to continue at a 3 percent rate in the fourth quarter and into 2015. Consumer confidence has been gaining steadily. Hiring is on the rise, job openings are at a near record level, and there has been a low rate of initial unemployment claims since May. Motor vehicle sales are still on an upward trend, though the really strong gains may be over. Spending on consumer services, such as recreation, is projected to strengthen as incomes rise. Odds are health care spending will pick up as consumers and providers get used to the new rules. And spending on utilities will stabilize once energy prices stop falling.
There seems to be more potential for an upside surprise than a downside slide. As job growth returns and consumers feel more secure, more-robust income and spending increases may well be triggered, pushing growth over the 3 percent mark. On the other hand, there is a smaller risk that rising interest rates next year could have a mild depressive effect. If that did happen, growth could slip from the projected 3 percent to a simply average rate of 2.5 percent. For now, however, economists expect that an increase of a half percentage point in rates will not have much impact on GDP growth. The other downside risk — a lengthy slowdown in Europe’s growth — could hurt U.S. exports. But again, the impact on the broader economy would probably be minimal.
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