This may be a happy new year for the US economy with growth accelerating in 2014. A better jobs market, lower unemployment, gains for manufacturers and more improvement for housing are all in the cards. The first Morning Memo of the year takes a look ahead.
Stock market averages begin 2014 at record highs. The broad-based S&P 500 – the benchmark for many stock mutual funds – closed out 2013 with an annual gain of 29.6 percent, the largest annual rise in 18 years. Many Wall Street forecasters expect a correction soon as stock prices are relatively high compared with corporate earnings. But a year ago “no one was talking about a 30 percent return” for 2013, says Susan Schmidt, head of US equities at Mesirow Financial. So perhaps it’s best to discount predictions about what’s ahead for the coming months.
Economists may be on firmer ground as they forecast improvements for the labor market. New job creation picked up in the final months of last year. Optimism about jobs is at a five-year high, says the Conference Board. The Federal Reserve recently cut its unemployment forecast for the year, saying the US rate could be as low as 6.3 percent by the end of 2014, compared with 7 percent now. Long-term unemployment remains stubbornly high, however. Unless Congress acts to restore recent cuts in jobless benefits, several million households with at least one job seeker who has been without work for at least six months will face a sharp drop in living standards.
The housing market continues to recover, but rents may rise faster than average pay rates. The listings firm RealtyTrac said foreclosure activity plunged 37 percent in November from a year earlier. As home values rise in most of the country millions more homeowners are no longer under water with their mortgages. This frees more people to seek jobs and other opportunities that would involve moving. Greater mobility helps the economy grow.
While few housing experts expect a slump, rising interest rates this year may put the brakes on rising prices and home sales. This week, the National Association of Realtors said contracts to buy previously owned U.S. homes rose less than forecast in November, a sign that more expensive mortgages are holding back the recovery in residential real estate.
Despite rising prospects for economic growth, inflation remains low, with average prices increases at less than 2 percent. Another plus for the US economy is improving prospects overseas. Europe, the leading export market for many American companies, is emerging from the recent recession. Growth in China, the world’s second-largest economy, is expected to be about 7.5 percent this year, while Japan’s economy continues to wake up after a long slumber. The worst of Europe’s sovereign debt crisis may over, and EU leaders made recent progress on more forceful banking regulation.
The US oil and gas drilling boom is expected to create more jobs and bring further benefits to the economy. Tom Kloza of Gasbuddy.com expects a slight decline in average gas prices this year. American manufacturers pay significantly less for energy than most foreign competitors – bringing back more jobs and production back to the US in 2014.
One more thing worth watching this year: US innovation. Advances in 3D manufacturing, robotics, and web design are all examples of positive change. Space X, Tesla, Google, Apple and Amazon are among many American companies on the cutting edge.
Richard Davies Business Correspondent ABC News Radio abcnews.com Twitter: daviesnow