US economic forecast 2014, stronger growth

The US economic forecast for 2014 has been revised upward by The Conference Board of Canada in a new report US Outlook: Winter 2014.

The US is shaking off the sluggish growth that has haunted its economy since the end of the Great Recession, the author believes.

After growing by 1.8% in 2013, US GDP (gross domestic product) is forecast to advance by 3.1% in 2014.

Principal economist at The Conference Board of Canada, Kip Beckman, said:

“Last year, the U.S. economy was dragged down by restrictive fiscal policy. The outlook for the U.S. economy is brighter in 2014, thanks to improving labor markets and the ongoing recovery in the housing sector.”

“In addition, the new budget deal recently reached by Congress will avoid another federal government shutdown and help the economic outlook.”

US GDP growth in 2013 was hampered by a combination of spending cuts at the beginning of the year and tax increases – together they probably sliced off about 1.5 percentage points from growth figures.

Thanks to a less restrictive fiscal policy this year, the public sector is expected to take approximately 0.4 percentage points out of GDP in 2014.

Housing and employment pushing up US economic forecast up

Beckman points out the US housing sector and labor market are “on the mend”. After stalling at the end of the year, they believe US job creation will pick up over the near term, probably with gains of more than 200,000 each month.

The Conference Board of Canada forecasts job growth of 1.8% in 2014, and unemployment should carry on falling.

There was a surge in US housing starts at the end of 2013. Housing starts are predicted to carry in rising at a strong pace during the next 24 months, due to pent-up housing demand and increasing prices. Household spending is set to grow by nearly 3% this year.

Stimulus package tapering, a key risk

The Federal Reserve is scaling back on its bond buying program that was implemented to stimulate the economy. The author sees this winding down as a key risk to US GDP growth prospects.

The Conference Board of Canada wrote:

“If the tapering program does not go as anticipated, it could sharply increase interest rates on mortgages and other loans and hurt consumer spending and business investment.”

Global activity is expected to be boosted in 2014 by the end of the recession in the Eurozone and an accelerating US economy.

High unemployment, sovereign debt problems and tight credit conditions will contain the European recovery somewhat. Nonetheless, the Eurozone should achieve GDP growth of about 1% this year, while the global economy is forecast to grow by 3%, after gaining 2.4% in 2013.

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