The Economic Advisory Committee of the American Bankers Association says that 2014 will be a breakout year for the country, as the fiscal drag eases and private-sector demand speeds up.
The Committee, which includes 13 chief economists from North America’s largest banks, says that GDP growth (inflation-adjusted) will be 3% this year compared to a yearly average of 2.3% since the end of the Great Recession and 2.8% in 2010 (post-Recession high).
Chairman of the group and chief economist of First Horizon National Corp’s FTN Financial, Christopher Low, said:
“This will be the strongest economic growth since the expansion began in 2009, and the committee’s strongest forecast since 2005. We expect faster growth in business investment and stronger job creation as the economy improves.”
Housing market to grow
As wages rise and unemployment falls, the bank economists predict house prices will continue to rise in 2014. The housing sector will carry on gaining strength as home sales recover from low levels.
The Committee expects home prices across the country to increase solidly, and residential investment to grow by 12.3% this year. Consumer spending will be supported by the strengthening housing sector.
“When families get into new homes, they spend more on appliances, furniture, electronics and building materials.”
US economy will be boosted by greater consumer spending
Consumers have regained confidence and report finding themselves in a stronger financial footing today. The Committee forecasts that for the coming 12 months consumer spending will boost economic growth, with automobile sales, especially, gaining strength.
“Some consumers remain cautious due to lingering high unemployment and slow wage growth. Many have not benefited from the resurgent stock market and personal income growth, and are carefully watching what they spend.”
“But tax rates will rise much less in 2014, and household balance sheets are healthier than they have been in years. The consumer is the key; if people loosen up their wallets and pocketbooks, economic growth will be even stronger.”
As the economic recovery gains strength, the banks’ economists say that the underlying drivers will broaden to include other sectors, apart from housing and consumption. In 2014, the fiscal environment will exert less drag on consumers and businesses.
The current passage of a budget agreement without spending cuts or large tax hikes contrast sharply with 2013’s fiscal austerity, “reducing economic uncertainty.”
A gradually shrinking deficit
In fiscal year 2014 the Committee forecasts a deficit of $560 billion, and less than $500 billion for 2015, compared to $630 billion in 2013. Tax receipts are also expected to increase.
Regarding past disruptive policy battles, Lou said:
“This year’s bipartisan budget deal will be extremely beneficial to the economy,” Low said. “For the first time since 2009, businesses and consumers can plan with much less worry about disruptive policy battles.”
While job growth in 2013 averaged nearly 180,000 per month, it is expected to exceed 200,000 monthly this year, the bank economists say.
Lou said “Faster job growth will pull the unemployment rate down to 6.4 percent by the fourth quarter. The Federal Reserve will continue to monitor the job market and taper asset purchases accordingly. In the meantime, watch for investors to shift focus from the Federal Reserve’s asset purchases to its guidance on rate policy.”
The Federal Reserve is expected to “maintain a very accommodative policy stance, keeping the federal funds rate extremely low.”
Finally, the Committee predicts that consumer credit will grow much more rapidly this year, and delinquencies will remain at low levels in 2014 and 2015.
Lou said “Banks will continue to meet the needs of their customers as we work to make the loans that help drive our economy forward,” Low said.
The Economic Advisory Committee of the American Bankers Association includes the following members: Bruce C. Kasman, chief economist, JP Morgan Chase & Company, New York; Carl R. Tannenbaum, SVP and chief economist, Northern Trust Corporation, Chicago; EAC Chairman Christopher Low, chief economist, First Horizon National Corp’s FTN Financial, New York; Ethan S. Harris, co-head of global economics research, Bank of America Merrill Lynch, New York; George Mokrzan, SVP and director of economics, Huntington National Bank, Columbus, Ohio; Gregory L. Miller, SVP and chief economist, SunTrust Banks, Inc., Atlanta; Nathaniel Karp, EVP and chief economist, BBVA Compass, Houston; Peter Hooper, managing director and chief economist, Deutsche Bank Securities Inc., New York; Richard F. Moody, SVP and chief economist, Regions Financial Corporation, Birmingham, Ala.; Robert A. Dye, SVP and chief economist, Comerica Bank, Dallas; Scott A. Anderson, SVP and chief economist, Bank of the West, San Francisco, Calif.; Scott J. Brown, SVP and chief economist, Raymond James & Associates, Inc., St. Petersburg, Fla., and Stuart G. Hoffman, chief economist, PNC Financial Services Group, Pittsburgh.