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5 Keys To The U.S. Economy To Watch In 2015

Economy Tribune News Service

5 Keys To The U.S. Economy To Watch In 2015

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By Kevin G. Hall, McClatchy Washington Bureau (TNS)

WASHINGTON — Ask five economists what they expect for 2015 and you’re likely to get scores of answers. Don’t fret: We’ve narrowed it down to five pivotal issues that will decide just how strong the U.S. economy grows this year.

1. Interest rates

Sometime this year the Fed is likely to raise rates, which will ripple through all sorts of lending.

By the middle of the year, “we expect the unemployment rate will be closing in on 5.5 percent and the inflation rate will be between 1.5 percent and 1.75 percent but on the rise,” said Chris Varvares, senior managing director of Macroeconomic Advisers in St. Louis.

The Fed meets eight times a year, and the most likely time frame for a rate hike is its fourth meeting, set for June, Varvares said, though it could raise rates by a quarter of a percentage point in any or all of the four meetings that will come after. The pace could become faster in 2016. Since long-term loans in part take their cue from this Fed rate, it will become more expensive to borrow to buy a home or car. That might slow economic growth.

“The expansion has seemed to be so tentative, even fragile, that you have to be at least a little concerned about what the response will be to rising rates,” said Varvares. “If the rise in rates were to slow the increase in home prices or knock down the stock market, then it would be a negative for consumer spending. And that’s pretty much the foundation of economic growth.”

2. Oil prices

The drop in oil prices has been akin to a massive and welcome tax break for consumers. The AAA Motor Club estimates Americans spent $14 billion less on fuel last year than they did in 2013.

“It would not be surprising for U.S. consumers to save $50 (billion) to $75 billion on gasoline in 2015 if prices remain low,” said Michael Green, a AAA spokesman.

But there are risks for the economy in the plummeting prices. For one, energy companies are almost certain to cut back their drilling plans, with impacts on hiring and equipment coming quickly.

“I fear the recent plunge in oil prices will prove most damaging to the economy in the near-term as capital spending budgets are scaled back,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, N.C. “The benefits from lower gasoline prices will take longer to show up.”

That will have a negative effect on the nation’s gross domestic product, he suggested.

That’s because the five largest energy-producing states — Texas, North Dakota, Oklahoma, New Mexico and Colorado — accounted for about 25 percent of the growth in GDP last year. Their outsized contributions to growth will slow; the rise in consumer spending from lower gasoline prices will offset some of that but not all.

“We may see overall growth slow in ways that are still largely unanticipated,” Vitner said. “The energy boom was so big that it carried over into all facets of the economy.”

3. Housing

The U.S. economy is firing again on most cylinders — except housing.

The 5.12 million home sales reported by the National Association of Realtors in November were 3.8 percent below a year earlier, and tight credit makes it difficult for many Americans to get mortgages.

“That’s one of the things that have held back the recovery so far,” said Gus Faucher, senior economist at Pittsburgh-based PNC Financial Services.

Faucher anticipates a gradual increase in the number of single-family home “starts,” signaling an intent to build a new house, in 2015, to about 725,000 for the year, up from the 646,000 starts that had been recorded for 2014 through October (home-building slows sharply in November and December).

“I don’t think we’re going to get a boom in homebuilding,” he said. “But certainly there is room for gradual improvement.”

4. Household formation

One of the aberrations in the recovery is the unusually low rate of household formation. That’s a fancy way of referring to people moving in together, as couples or roommates, and forming new households. After the Great Recession, many young people remained living in their parents’ homes or crowded into apartments together.

“I expect household formation to substantively pick up in 2015 as millennials break away from their parents and strike out on their own,” said Mark Zandi, chief economist for Moody’s Analytics in West Chester, Pa.

An increase in household formations is associated with greater economic activity, especially home sales and apartment rentals. It also implies rising incomes.

“I think that is the single most important development for 2015, that we will finally see acceleration in wage growth. Workers will get real (pay) increases,” Zandi said.

5. Global events

Events in faraway places matter, but they’re unlikely to derail the U.S. recovery. That’s because exports account for only 13 percent of the economy. In fact, slower growth abroad may, in a perverse way, benefit the U.S. economy.

“Yes, it’s a vulnerability, but a limited vulnerability,” said Nariman Behravesh, the chief economist for IHS Global Insight in Cambridge, Mass. “Weakness in the rest of the world can be good news for the U.S. It could lower commodity prices even further, helping to keep inflation and interest rates low.”

While the impact on the U.S. economy is limited, economic deterioration across the globe might be troublesome especially for companies with global operations, such as General Electric, Chrysler or Caterpillar.

“We are worried about growth in Europe, Japan and China,” said Behravesh. “China is a worry. We’re now saying only 6.5 percent growth in China. Could it be lower than that? I think entirely it could.”

AFP Photo/Spencer Platt

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16 Comments

  1. charleo1 January 3, 2015

    What kind of a business is it that’s soliciting help? Modeling agency? Beauty School, Escort service? Motorola plant in Honduras? And who chose this pic? “Apply inside.” Even College Grads with law degrees, welcome. Must be able to lift 50′ crates of lettuce onto produce trucks a minimum of 10 hrs. per day. That’s the situation in our economy today. The handsome gains realized in the top tier of our economy, have simply not yet, “trickled down,” to the larger service economy in which many millions earn their daily bread. The larger, more important question going forward, are those gains ever likely to, given the structurally skewed, almost unchangeably rigged system that’s been installed over the last 40 years? Because all the kvetching about high taxes, and runaway public debt, that have dominated conversations in the “conservative,” Right Wing. Have been akin to treating a heart patient with Camel Cigarettes, and bacon cheeseburgers, super size those fries please. Unfortunately, the results of many Americans failing to see real substantial gains in their own situation, has been a head long rush into the arms of the very political Party that worked the hardest to create this dual personality economy we find ourselves with. And the political Party the least likely to improve the current situation for the average working person.

    Reply
    1. bobnstuff January 3, 2015

      One thing I’ve noticed is no one wants to start at the bottom anymore. The idea of climbing the ladder seems to have disappeared. You get promoted to get a raise.

      Reply
      1. charleo1 January 3, 2015

        As if anyone ever did want to start at the bottom. But, the odds were a lot better 40 years ago, starting at the bottom
        meant an opportunity to build a career. Whereas today starting out at the bottom is more likely to be a process of starting out over, and over, and hoping to get lucky with a longer term position. As let’s face it, a lot of the service sector positions aren’t anything to write home about. Lots of contract labor. Temp positions, for temp situations. Then move on, hand to mouth. No money left over for a. “buy in,” stake, to get ahead. A home, a retirement plan, a credit rating. Dependable income is key. And that’s getting harder all the time to come by. This is where having the lowest upward mobility quotient since the end of the Second World
        War, conspires for a very tough economy for the Blue Collar
        kids. And polls show for the first time in 70 years, parents in this demographic, do not believe their kids will do as well financially as they managed to do. A lot of kids are just saying screw it for now, and living on student loans, maybe joining the military, and looking for a leg up there. I don’t envy them. But if the older generation thinks they can solve this by simply prodding these kids. Telling them to get off their lazy butts, and get a job. As if the economy they started out in, has the same opportunities, the same number of steady good paying jobs, or that the cost of training, and education is anywhere near comparable today, as then. Then they are woefully underestimating the challenges.

        Reply
        1. bobnstuff January 3, 2015

          I work for a very large company and all most everyone starts at the bottom and worked their way up. I have had to work hard at not climbing the ladder. Every job I have had has had the chance of moving up. I started out as a driver at Domino’s
          and ended up running three stores, I worked for a vendors rep group and ended up as a district manager. The ladder is still there for those that have the drive. The thing is you have to have the skills
          and education needed and do the job. The problem is that you have to learn the job before you can move up and that takes years. Most people don’t want to wait. They think they should be the boss right off the bat.

          Reply
          1. dtgraham January 4, 2015

            So, no matter how good a driver you are for Domino’s, if you don’t end up running any stores (let alone 3) too bad for you. No matter how good a clerk you may be for a vendors rep group, if you don’t become a district manager, tough luck. No, the problem is not that people want to be the boss right off the bat. The problem is that people want to be able to pay their bills, feed themselves, pay their rent, have a vehicle, and have some kind of a reasonable life. Anybody working 40 hours per week in a rich country should be able to do at least that.

            Reply
          2. bobnstuff January 4, 2015

            It’s not luck it’s drive. Yes minimum wage needs to go up. I have hired 1000’s of people over the years and never paid minimum wage. There are 200 some people out there running business’s that I trained. Just so you know a driver for Domino’s or most pizza shops can make $15 per hour. The problem is people think they need cable TV, cell phones you can watch TV on, game systems, and eating out five times per week. There are always openings to be a manager even at McDonalds. If you don’t want to be a manager get a skill that is needed. If you want to get paid well get good at it. About 2.6% make minimum wage in the US of them over half are under 30.

            Reply
          3. Dominick Vila January 4, 2015

            I had similar experiences, and couldn’t agree with you more. The only thing I would add is that this is not a new phenomena. I had trouble hiring people 25 years ago when I told them that they had to work shift work, Holidays, and that when someone was absent, there was a good chance they would have to work overtime. Bear in mind that our technicians made between $45 and $50 an hour when they worked a Holiday (triple time). Part of the problem involves unrealistic expectations, and refusal to go the extra mile. Needless to say, there are other contributors, but this is definitely one of them.

            Reply
          4. dtgraham January 5, 2015

            For starters, if you’re in favour of the minimum wage going up substantially then we don’t have an argument.

            Beyond that, no it’s much more luck than drive. How many McDonalds employees are there at a typical store and how many managers are there at that same store? Your drive will be competing against a whole lot of other employees who have the same drive, for one promotion…whenever it eventually becomes available. There are not “always openings to be a manager” at every McDonalds and the suggestion that a french fry cook is going to be transferred across the city or state to another Mcdonalds for a promotion is just silly.

            Everybody that works full time should be able to afford cable TV so they don’t have to watch game shows and televangelists all evening. A mobile phone and eating out a few times a week also doesn’t seem like the earned rewards of the accomplished in life. You’re only talking very basic things here and yet you’re making it out to be the lifestyles of the rich and famous. Nobody is suggesting that pizza delivery drivers and fast food counter clerks should be paid enough to regularly take exotic vacations or buy a luxury car. I’m just saying that anyone who works 40 hours per week doing anything should not have to rely on food stamps, and should be able to have some kind of a life. They should be able to live, not just exist. Unemployed homeless people exist. You seem to be implying that only some full-time participants in the labour force get to enjoy the benefits of life in an advanced, developed nation. Others should have to live almost as though they were in a third world nation.

            The typical minimum wage earner is an adult, often with a family, and is not a teenager living at home. That 2.6% figure is debatable. I’ve seen that and I’ve also seen double that figure. It’s hard to say, but here’s what you’re not considering. The minimum floor is set very low at $7.25 per hour. That means that there are a lot of very low income earners not counted in your 2.6% figure. Because of that very low floor, there are far too many people working for $7.50 or $7.75 or $8.00 or $8.25 or $8.50 per hour. Those would be people who moved up, got promoted, and are now possibly working as a McDonalds or a Walmart manager. Those are all ridiculous wages and that’s the ripple effect of having a minimum set so low.

            Every economy needs clerks, drivers, labourers, hospitality and service workers, security guards, cleaners, janitors, food service workers, warehouse workers, etc… etc… No economy could function without these people. It’s like the old saying—somebody has to do it. Again, I’m not suggesting that everybody should be “paid well”, however exactly you’re defining that. I’m just saying that everybody should be “paid enough”.

            Incidentally, that $15.00 per hour Dominos driver has gas and maintenance to deduct from his wages on his own vehicle, and depreciation to consider. That’s not straight money. You must be extremely generous or you’re factoring in tips. Where I live, the minimum wage is $11.00 per hour and I don’t know how many pizza delivery people make $15.00 per hour.

            Reply
          5. bobnstuff January 5, 2015

            I supported my family for a year as a driver at Domino’s so I know for a fact it can be done. I paid mortgage and paid my bills. I keep detailed records of my income and costs. My supervisor got a kick out of asking me how I was doing because I would give a detail account of the days money. When I first started out a color TV was a luxury and people read books. The people entering the world of work thinks they should have everything their parents have after twenty years of working. They think they should have what they call a life. No one wants to earn what they have anymore..

            Reply
          6. dtgraham January 5, 2015

            There’s plenty of room for reasonable people to debate this and compromise bob. From my perspective, no economy produces so much wealth that everyone can be paid a small fortune. I understand that. There are limits beyond which investment and job creation could start to become stifled. It’s just that the research on this does’t support the exaggerations that the political right put on these limits.

            The data on the effect of minimum wage increases on job growth is inconclusive. There really isn’t an expert consensus, even among leading economists. Partly because minimum wage increases don’t happen in a vacuum, and unrelated bubbles, booms and busts skew the results.

            However, modern research does tend to show that raising the minimum has little significant impact–positive or negative–on employment.

            I’m sure you’ve heard a lot of talk of how the great gains in all of the macro economic indicators (Dow, unemployment levels) still haven’t filtered down properly to average Americans. A significant increase in the minimum (possibly phased-in) to something approaching international standards would go a long way in helping those gains be felt among workers. It would also take a chunk out of the tremendous income inequality problem and may even assist with improving inter-generational social mobility over time, as the U.S. Gini-coefficient is terrible on that.

            Well, those are just my thoughts anyway for what they’re worth. Good chatting with you. You have the last word if you want to reply.

            Reply
          7. bobnstuff January 5, 2015

            I agree with you that mimumin wage should go up, even though it is a shame that there even needs to be one. $10 per hour wouldn’t even show up in inflation and would help our economy. $15 would be almost a living wage. If we did take it up to $15 we would be able to save money on things like food stamps an other pieces of the safety net. At one time companies were valued by
            their assets now its by the profits. Wall St. is killing our countries value and will be the downfall of the economy once again. I still believe in the value of work and the american dream. I watch
            the new hires come in with know understanding what it takes to move up. I’m a teacher at heart and have helped the ones that will try get
            a leg up. It’s been good dealling with someone who thinks and deals with facts.

            Reply
  2. Dominick Vila January 3, 2015

    The biggest challenge to continued economic growth is going to be inevitable interest rate hikes by the Fed. With the economy on solid ground, low inflation, and increased consumer confidence and spending, an interest rate increase in the second or third quarters are inevitable. Wall Street will react immediately, and the DOW is likely to drop 3,000 or 4,000 points…before bouncing back.
    Oil prices will rise as soon as the Chinese economy recovers, and China resumes importing high amounts of oil. Consistent with the law of supply and demand, oil prices will rise accordingly.
    In the meantime, take advantage of the low interest rates to buy property and borrow to start a new business.

    Reply
  3. Joseph Biten January 3, 2015

    Harry Reid acts like a spoiled child.

    Reply
    1. Independent1 January 6, 2015

      Really?? Why is that?? Because he’s refused to bring up to the Senate a ton of bills that the Tea Party led House has filled with poison pills?? And what about McConnell who has resorted to using the fake filibuster more than 425 times to prevent the Dems from accomplishing anything?? Talk about being a spoiled child!!!!!!

      Reply
  4. 14hei January 3, 2015

    If the economy for the lower and middle income Americans is to improve these horrible trade deals must come to an end. An the proposed Trans Pacific Partnership deal must never pass into law. For it would be the final nail in the coffin for the average working American. The new 114th congress will along with the president push to fast track this trade deal. I ask citizens of this country to contact their federal representatives in congress and let them know how horrible this TPP trade deal would be for them and their communities they live in.

    If you can buy local from small businesses in your community. This will circulate the money within your community. An if all your neighbors did the same the local economy in your town would improve. This would be better for everyone

    Reply
  5. Captain Dickson January 8, 2015

    In 2012, the brain-dead apparatchiks of the Obama regime wasted $96,000 on iPads for kids. In kindergarten.

    Reply

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