Forecast 2014 2015 Till Schreiber Senior Lecturer Professor College of William amp Mary September 26 th 2014 Nafa Annual Convention Aspen CO Looking back to Savannah My forecast a year ago ID: 266230
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US Economy Forecast 2014, 2015
Till Schreiber
Senior Lecturer Professor
College of William & Mary
September 26
th
2014
Nafa
Annual Convention, Aspen, COSlide2
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 rightSlide3
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?Slide4
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)Slide5
Will the jobs/workers come back?Slide6
Share of workers claiming social security disability (Mueller et al, 2013)Slide7
Government regulation
How much does ‘too much regulation’ reduce growth?
Talk of secular stagnation, permanently lower growth
Can US economy return to 20
th
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 imminentSlide8
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?Slide9
Investment as share of GDP (blue) vs. Unemployment rate (red)Slide10
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 yearSlide11
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 overallSlide12
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)Slide13
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 continuesSlide14
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 allSlide15