New year starts with confidence about the economy

McClatchy NewspapersJanuary 2, 2014 

Analyzing the Data


For the first time since 2007, the U.S. economy is poised to start the new year on a strong footing amid a flurry of signs that point to a firming recovery.

From sales of cars and homes to hiring and the booming stock market, there are reasons to finally believe that the coming year will be markedly better than the last, and that a fits-and-starts-recovery will hit its stride.

“I would argue that we’re coming out of rehab finally in the United States,” said Ethan Harris, a top economist for Bank of America Merrill Lynch.

The U.S. economy grew at a sizzling 4.1 percent annual rate in the third quarter, the Commerce Department said Dec. 20. That’s stronger than previously thought.

The final three months of 2013 also might finish stronger than the initial forecasts of under 2 percent. Economists had worried that the strong third-quarter growth came from businesses replenishing their inventories, an unwanted trend that would disappear in the final months. But the revisions showed that consumers had powered the strong growth over the summer months.

“We have been painting a pretty optimistic picture of 2014 U.S. growth,” Scott Anderson, the chief economist for Bank of the West in San Francisco, said in an outlook for the coming year. “Indeed, recent economic releases have added to that rosy picture.”

“That inventory build everyone seems to be fretting about does not seem unwanted at all. Rather, it’s a response to stronger demand,” Neil Dutta, the head of U.S. economic research for Renaissance Macro Research in New York, said in a note to investors.

In his final forecast as the chairman of the Federal Reserve, Ben Bernanke said Dec. 18 that the Fed expected growth of 2.8 percent to 3.2 percent in 2014. That’s a bit rosier than the 2.5 percent to 3 percent that most mainstream economists project.

Automobile sales are one area that’s already reflecting improved consumer confidence.

Analysts expect sales to have exceeded 15.6 million vehicles in 2013, up 8 percent over 2012, according to the car sales reference company Kelley Blue Book.

They anticipate sales increasing another 4.3 percent in 2014, to 16.3 million units. That would be the first time the figure has been above 16 million since 2007, the year before the financial crisis and the Great Recession.

The outlook for the manufacturing sector, an outsized one when it comes to hiring, is cautiously upbeat.

“When I talk to manufacturers about next year, they tend to be mostly optimistic,” said Chad Moutray, the chief economist for the National Association of Manufacturers. “They see their sales and production picking up next year.”

One reason for Moutray’s optimism is improvement in the housing sector. Manufacturing for housing has picked up as new-home starts heat up and more people remodel existing homes. Prices of existing homes rose in 2013 at their fastest pace in eight years, according to the National Association of Realtors.

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