US economy on track for best growth since 2005

Economists say the road is clear for a 3% boost in 2014, but we've heard that before.

By MSN Money Partner Jan 20, 2014 1:17PM
Image: Arrow Up (© Stockbyte/SuperStock)By Jeffry Bartash, MarketWatch

Think the disappointing U.S. jobs report for December has dampened the optimism of economists about the new year? Think again.


Most economists think the dismal 74,000 increase in net hiring last month was a fluke caused by poor weather and seasonal-adjustment problems that will soon be revised away or prove to be an aberration.


The way those with a sunnier view see it, the road is clear for the U.S. to produce its fastest spurt of growth since the Great Recession. There's no big crisis in Washington brewing, U.S. households are better off financially and businesses are raking in the profits. Nor are there any major global threats to the economy on the horizon.


Consider the new forecast by top economists at the nation's leading bank firms. They're predicting the U.S. economy will hit 3 percent growth in 2014 for the first time in nine years.


The forecast by the advisory panel of the American Bankers Association is no outlier, either. A rising number of economists predict the U.S. will meet or beat the 3 percent threshold.


"We see 2014 as somewhat of a breakout year," said Christopher Low, chairman of the ABA's 13-member panel and chief economist of FTN Financial.


President Barack Obama, faced with sagging poll numbers, hopes economists are right and he's telling the public the same thing.


"I say this can be a breakthrough year for America," Barack Obama said in a speech late last week. "The pieces are all there to start bringing back more of the jobs that we've lost over the past decade."


So what makes 2014 different?


For starters, Washington is on track to pass budget bills to fund the government through the next two years and no new tax increases are coming down the pike. For the first time in five years Republicans and Democrats appear ready to play nice and avoid a wrenching fiscal fight that would undermine the economy again.


"A new leaf has been turned over," said Peter Hooper, chief economist of Deutsche Bank. "And this is huge."


Of course, Washington may find other ways to hold back growth. Some economists fret the new health care law could have a negative impact on hiring and spending. Others say the federal government has been too tardy to get behind the boom in U.S. energy production, depriving the economy of even more jobs and growth.


Still, the budget truce is expected to give businesses more confidence and allow them to better map out their spending, hiring and investment decisions for the next few years.


That's no small thing. Investment only rose about 2.3 percent in 2013, less than half the rate of the prior year. Economists believe the government shutdown in October and the bitter fight over tax rates at the end of 2012 kept companies largely on the sidelines.


Business leaders might not like all the decisions coming out of Washington, but they hate uncertainty even more. The budget deal gives them certainty.


Against that backdrop, economists predict companies will more than double their investment in 2013 in equipment, machines, plants and the like. If so, that would further solidify the foundation for the economy to grow.


"Now that the policy uncertainty has been reduced, we should see business investment pick up," said George Mokrzan, director of economics at Huntington National Bank in Ohio.


Trickle-down economics?

For American workers and millions of unemployed, that’s also a good thing.


Lots of jobs tend to be created when companies raise investment. More people have to be hired to build new offices or to meet the increase in demand for business equipment such as computers or machine tools.


What’s more, companies usually have to offer higher wages to attract good workers as the pool of available labor shrinks. That also gives people who already hold jobs the ability to ask for higher pay or the leeway to go work some place else.


By and large, such an option hasn't been available to most workers since the end of the 2007-2009 recession. Worried about losing their livelihoods, many Americans have stayed longer in the current jobs than they expected or have accepted meek increases in their yearly salaries.


To be sure, no one is predicting that worker paychecks will start looking like winning Powerball tickets. The average hourly wage of U.S. employees only rose a scant 0.2 percent in the past 12 months, adjusted for inflation. The pace of hiring would have to surge to trigger a steady rise in salaries.


Such a scenario is unlikely in 2014. The ABA economic panel, for example, projects hiring will climb to an average of 200,000 a month this year, just a little better than the roughly 180,000 average in both 2013 and 2012.


Still, even a modest improvement in hiring could put upward pressure on wages, help American families and brighten the nation’s outlook. The U.S. is projected to add at least 2 million jobs for the fourth straight year, pumping more money into the economy and moving it closer to its historical growth average of 3.3 percent.


How long it takes to get back there, however, is still a dicey question. And the soothing talk of economists has to be taken partly with a grain of salt. Economists on Wall Street and inside the Federal Reserve have repeatedly forecast faster growth at the start of each year since 2010, only to see those predictions dashed.


Potential pitfalls

What might lead to another disappointment in 2014? For one thing, the Fed's move to end a massive economy-stimulus program by the fall could push interest rates higher and dampen resurgent sectors of the economy such as autos and housing whose sales are fueled by borrowing.


"I do think there has to be some fallout," Low said.


The labor market, for its part, has shown occasional bouts of weakness. Companies have boosted hiring in the first few months of each new year since 2011, only to cut back by summer.


What the nation needs is an uninterrupted period of strong job creation. As the dwindling number of bearish economists point out, more than 20 million people who want a good full-time job still can't find one. That's depressed wages for all Americans and gives companies the upper hand over its employees.


A large share of the 7.5 million new jobs created since 2010, what's more, are in lower-paying industries such as retail or hospitality. Millions of American still have great trouble just making ends meet. See slide show on who hired in 2013 and what they pay.


The persistently soft labor market, in the bearish view, largely explains why the current recovery has been the weakest in the postwar era -- and why boom times are still not just around the corner. 


More from MarketWatch

34Comments
Jan 20, 2014 1:44PM
avatar

The US is on track for 3% growth as China slows?

I suppose only in a kool-aid infused, QE counterfeit fantasy land !!!

 

The US needs real, organic growth which can only come from increased investment within America, not some third-world, cheap labor division of a multi-national.  Debt-fueled growth is temporary at best. Spending from savings is likewise.

 

Jan 20, 2014 4:22PM
avatar
With ninety-two million people out of work, food stamps run rampant, unbelievable debt. under Obama, and no jobs in the foreseeable future, how in the world is the US economy on track for the best growth since 2005?
Jan 20, 2014 2:15PM
avatar
funny Brent when Bush was in office the economy was doing 1000% times better and energy and
food prices were down and we all had our own healthcare that WE got on our own and was happy
with and there was less people on welfare and unemployment but OBAMA AND DEMONCRAPS
INVENT THIS 'RECESSION' AND DEBT CRISIS AND THEY HAVE DOUBLED BOTH! YET OBAMA
AND HIS BIG LIBERAL RICH BUDDIES ARE RAKING IN THE PROFITS IN THE STOCK MARKET!
BUT WHEN IT'S HARD WORKING TAX PAYERS AND CAPITALIST WHO CREATE JOBS NOT KILL
THEM LIKE OBAMA YOU SAY THE REPUBLICANS ARE MAKING THINGS UP? LIKE A VIDEO?
LIKE KEEP YOUR INSURANCE? LIKE IRS? LIKE FAST N FURIOUS? LIKE STIMULUS SHOVEL
READY JOBS? LIKE NO NEW TAXES? THE LIES AND 'PHONY' SCANDAL AS YOU LEFT WING
NUTS CALL THEM ARE NOTHING BUT LYING TO YOURSELVES CAUSE YOUR SOCIALIST
AGENDA CRAP DOESN'T WORK! FIRST IT WAS GLOBAL WARMING THEN IT WAS CLIMATE
CHANGE NOW IT'S PLOAR VORTEX? WHAT'S NEXT? CAN'T EVEN KEEP YOUR LIES AND
PROPAGANDA FROM TURNING EVEN MOST LEFT WINGERS AGAINST THIS FRAUD!

Jan 20, 2014 2:26PM
avatar
Alice is apparently STILL in Wonderland...
Jan 21, 2014 8:36AM
avatar
Wasn't Bush and the Republicans in charge in 2005? 
Jan 20, 2014 10:09PM
avatar
BRENT WROTE

NM:Years ago I had a boss who really disliked anybody who drank.Once I met his brother and asked him why he felt that way.His answer was "once he bought a car for a really good price and when he went

to get the car from those 2 drunks the car no longer had a motor or transmission".


WERE YOU BORN A MORON OR DID LIBERALISM CAUSE THE AFFLICTION ??

Jan 20, 2014 2:17PM
avatar
Now Brad Pitt is suing one of these GREEN companies because the so called climate friendly wood
that last forever he used to build some houses in new orleans after Katrina is rotting away! another
SCAM BY SOME LEFT WING LIBERAL COMPANY WHO LIED AND GOT TAX PAYER MONEY!
I HOPE PITT WINS BIG AND MORE OF THESE FRAUD GREEN CLIMATE COMPANIES EXPOSED!

Jan 21, 2014 12:13AM
avatar
Google new GDP calculation and rewrite this entire foolish article. 
Jan 20, 2014 5:28PM
avatar
BRENT 

WE HAVE THE MARTI REPORT           LOL
Jan 21, 2014 11:36AM
avatar
More BULL "S" from the spin masters ! US Economy is about to collapse in 2014. A mountain of debt carried by the middle class , foreclosures', student loans, mortgages, credit cards  commercial real estate empty buildings! This paints a vastly different picture than the so called improving economy !    DIE BANK OF AMERICA DIE !
Jan 20, 2014 4:52PM
avatar
Brent

Has Jill completed the 1/4 mile yet ??
Jan 20, 2014 5:11PM
avatar
At least the free-falling, nose-diving economy of the last few years has started to take a more manageable flight. Now there is a horizon to fly to instead of just a cliff to fly into
Jan 21, 2014 9:21AM
avatar
Regardless, stock prices have gotten too far ahead of earnings and it's time for a nice 15% correction. I want to see Dow 14,000 by June so I can pick up some bargains.
Jan 20, 2014 5:25PM
avatar
NM:You better check out that deal.He probably bought a die cast model.
Jan 20, 2014 7:31PM
avatar
Too much to pay for a GT....Is your husband Japanese or Chinese....???
Jan 20, 2014 5:54PM
avatar
ZERO chance of higher anything except retail prices and dead stock from higher retail prices. It's not rocket science... deadbeats will be grubbing for more than game token fiat money from stocks and bonds this year. More like dinner and a new way to keep a roof over their heads.
Jan 20, 2014 7:35PM
avatar

CACIQUE.....


That's one of the best explanations of "recent times" that I have read in 4-5 years...

Excellent synopsis and view...

Jan 20, 2014 7:27PM
avatar

Actually, Alice is here posting several comments back...


Unfortunately for many of us or myself, they now have computers in Wonderland..

Jan 20, 2014 3:40PM
avatar
ZERO chance of higher anything except retail prices and dead stock from higher retail prices. It's not rocket science... deadbeats will be grubbing for more than game token fiat money from stocks and bonds this year. More like dinner and a new way to keep a roof over their heads.

Jan 20, 2014 4:59PM
avatar

NM:She`s fit as a fiddle.Are you ready for the 10 inches of snow?The powers that be got their palms greased to have the Super Bowl in the snow and cold and now they`re squelling like pigs getting

their tails cut off.When the temps get 30 degrees here we keep a stiff upper lip.When it gets

30 below they need to do the same.Right?

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

118
118 rated 1
270
270 rated 2
472
472 rated 3
714
714 rated 4
624
624 rated 5
608
608 rated 6
623
623 rated 7
445
445 rated 8
319
319 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.