Economic Predictions for 2014

 Happy New Year! I hope everyone had a restful, enjoyable holiday season. Now the cold, hard reality of resuming the grind strikes us. What plans do you have for your shop now that we’ve reached 2014? Are you planning to buy more equipment for your shop? Expand staff? Move to larger quarters? Downsize and embrace “lean” manufacturing?
Opinions vary on which way the economic winds will blow in the new year. Some clearly have vested interests. A Google search on “economic trends 2014” yielded a gamut of opinions. It’s wise to discard those with skewed viewpoints; some items gleaned in the search could best be paraphrased as, “Unfettered Stock-Market Growth! Give Us All Your Money to Invest!”, or, in contrast, “2008’s Downturn was Nothing! The Apocalypse Is at Hand! Sell Your Stocks and Buy Gold/Real Estate/Other Tangible Assets!”
On the rational middle ground, Kiplinger’s and The Christian Science Monitor (CSM) can be relied upon as credible news sources. They’ve noted several trends and forecasts that reflect a tone of guarded optimism.

GDP
CSM notes, in a story by Schuyler Velasco, 2013’s gross domestic product (GDP) registered 1.9% in 2013, and experts it consulted expect nearly a full percentage point of 2014 GDP growth. One expert from IHS Global predicts 2.6% GDP growth, and an analyst from Nationwide Economics pontificates 2.7% growth. They predict the easing of the fiscal drag caused by the federal government’s sequester cuts and government-shutdown aftershocks from the fall. Positive factors include lower oil prices and stabilizing household net worth, which will play roles in boosting economic growth. However, the article notes these figures still fall below the historic trend of 3% annual GDP growth.
In an article written by David Payne, Kiplinger’s forecasts 2.6% GDP growth for 2014, with a lower first-quarter growth rate that builds as the year progresses.

Unemployment
According to CSM, the Federal Reserve adjusted its unemployment-rate forecast down to 6.3% for 2014. However, the news isn’t quite as rosy for companies who ply their trade internationally; IHS Global predicts that unemployment in “advanced” countries will only tick from 8.1 to 7.9% because automation will diminish the need for increased labor.
Kiplinger’s state-by-state economic forecast underscores very diverse economic conditions across the U.S. With the exploding growth of oil production at its shale-oil reservoirs and the growth of other businesses to support this boom, North Dakota projects to have the nation’s lowest unemployment rate at 2014 at 2.8%. South Dakota, Nebraska and Iowa’s mixes of agriculture, manufacturing, hospitality and healthcare industries will help their unemployment rates reduce – their forecasted rates are 3.6%, 4.1% and 4.7%, respectively.
Conversely, Nevada will continue to suffer from the crater left in its economy from 2008’s housing bust, and flat hospitality and gaming markets will conspire to keep the state’s unemployment rate around 9%. California’s economy and housing market collapsed nearly as significantly as Nevada’s, though construction, hospitality and financial-services market growth will reportedly tick its unemployment down to 8.5%. Hospitality and professional-service sector improvements will help North Carolina’s economy, but its forecast unemployment rate will still hover around 8.4%, Kiplinger’s reports. Mississippi’s growing manufacturing base will slightly lower its unemployment rate to around 8.1%, according to Kiplinger’s.

Interest rates
This year might be a good time to invest in equipment; most sources point to an eventual rise in long-term interest rates as the federal government reduces its bond-buying stimulus program. According to Kiplinger’s, if bond-market investors actively participate in the market, rates will only rise modestly; however, poor bond-market participation would trigger greater investor anxiety and cause interest rates to soar. For example, Kiplinger’s predicts 30-year mortgage rates will rise to 5 to 5.5% in 2014; in contrast, short-term rates should remain stable because Federal Reserve fund rates are expected to remain near zero through the year.

Inflation
With often-volatile energy expected to remain stable in 2014, CSM predicts inflation will remain at or below 2% for the year, with the consumer-price index (CPI) growing in 2014, but still-high unemployment will temper significant price increases.
Kiplinger’s similarly predicts inflation will remain below 2% in 2014, with the CPI growing 1.8%, an increase from 2013’s 1.4%.