Download US Economy Forecast 2011, 2012

US Economy
Forecast 2014, 2015
Till Schreiber
Senior Lecturer Professor
College of William & Mary
September 26th 2014
Nafa Annual Convention, Aspen, CO
Looking back to Savannah
• My forecast a year ago:
– Slow (below long-term average) growth in 2014
– Unemployment falls slowly
– Disappointing recovery continues
– Government muddling through instead of
implementing pro-growth policies
• Unfortunately, this turned out to be about
right
Realistic forecast must make
assumptions about some factors
• No ideological agenda
• Based on current and historical data, facts
(and some theory)
• Where is the economy now?
• What do some leading indicators suggest
about the near future?
Snapshot of the economy
• Unemployment rate 6.2% (ticked up recently)
– Labor force participation still really low
• GDP growth disappointing
– FELL 2.1% in first quarter (at annual rate), then went up by
4.2% second quarter
• Economy slowed down by multiple “headwinds”
– Cold winter in first part of the year
– Government deadlock
– Slowdown in Europe and emerging markets
• Inflation expected to be about 2% each year going
forward over the next decade (based on bond yields)
Will the jobs/workers come back?
Share of workers claiming social
security disability (Mueller et al, 2013)
Government regulation
• How much does ‘too much regulation’ reduce
growth?
– Talk of secular stagnation, permanently lower
growth
– Can US economy return to 20th century trend
growth?
• Immigration
• Not just you. Talk to Virginia Credit Union
League some month ago, very similar issues
• Assume: No reduction in red tape imminent
Investment, Investment, Investment
• Main issue of disappointing “recovery”
– Private sector investment (spending by businesses
on R&D, new machines etc.) fell of a cliff in late
2008, early 2009
– It has recovered somewhat, will it now continue to
increase or flatten out?
Investment as share of GDP (blue) vs.
Unemployment rate (red)
Business Sector
• You guys!
• High levels of uncertainty
– Regulations and Taxes
– Consumer and Industry demand going forward
• Purchasing Managers’ Index (ISM)
– High last summer/fall. Then big fall in early 2014, now
has regained the ground. Temporary blip or beginning
of faster recovery???
• Assume: Resilient investment demand, total
construction spending up over last year
Exports
• Questions about growth prospects in
emerging markets
– Dollar has recently appreciated versus many
emerging market currencies
• Eurozone faces internal issues, so does Japan
• No export boom likely overall
What to make of all this?
• Growth in the second half of 2014 will likely be
around 3%. But don’t be too optimistic (see below)
Forecast for 2015
• Growth should pick up once the recovery really
takes hold
– Has been predicted since late 2009, many businesses
and households have now paid down debt substantially
• Crucial market: Investment! Both residential
(housing) and other fixed investment
• No government policies in sight to address
regulation mess boldly
– Muddling through continues
Forecast for 2015
• If economy grows fast, interest rate hikes may
slow down recovery of housing market and
investment generally somewhat
– Federal Reserve scheduled to raise rates next year
• “Disappointing” economy may continue
• Growth of 3% unlikely to be topped next year
• Unemployment comes down further very,
very slowly if at all