Despite an exceptionally harsh winter that dampened GDP growth rate for the first quarter of 2013, UCLA economists set the US economic forecast for the rest of the year at approximately 3% growth, a figure that will probably persist well into 2016.
Construction, auto sales and factory output in the second quarter of 2014 are expected to more than make up for the losses incurred over the winter. Consumer spending, business investments and housing are also forecast to accelerate.
The UCLA Anderson Forecast team say California should not be overly affected by the abnormally dry weather conditions.
US economic forecast, job creation and inflation
David Shulman, UCLA Anderson Forecast Senior Economist, predicts gains in overall job opportunities. He writes:
“We can visualize the economy creating between 200,000-250,000 jobs a month with the unemployment rate dropping to 5.4 percent by late 2016 … total payroll employment will surpass the prior 2007 peak, but the economy will remain well below its pre-Great Recession growth path.”
Shulman predicts an increase in inflation, rising from 1.8% in 2013 to 2.5% in 2016. As inflation picks up, he anticipates wages will increase as well.
Yellen’s Fed like Bernanke’s
“To be sure, for most Americans, the increase in wages will be most welcome. But for those wary of inflation, it will be signaling a cautionary yellow light.”
“Specifically, we are forecasting total compensation per hour to increase by 2.4 percent, 3.5 percent and 4 percent in 2014, 2015 and 2016, respectively, compared to a very low increase of 1.6 percent in 2013.”
The Federal Reserve’s long experiments with the bond-buying stimulus package and zero interest rates are gradually coming to an end, Shulman adds. He expects the stimulus package, now at $55 billion per month, will be wound right down by the end of September 2014.
Shulman says “We forecast that the Federal Funds rate will rise, to use ‘Fedspeak,’ at a measured pace, reaching 3 percent by the end of 2016. In essence, the ‘Yellen Fed’ will be very much like the Bernanke Fed.”
In February, Fannie Mae’s Economic & Strategic Research Group’s US economic forecast predicted strong activity in the private sector for the whole of 2014, which will help push economic growth to 2.9%.