The outlook for U.S. growth remains cautiously positive. Strength in the housing market, exports to emerging markets and increased domestic oil production is hampered by uncertainty. Both families and businesses are hesitant to purchase anything that requires a long-term commitment. That's one reason why companies are resistant to hiring and purchasing capital equipment. As a result, the Federal Reserve predicts moderate improvement:
GDP growth will be:
- 2014: 2.8 - 3.2%
- 2016: 2.5-3.2%
- Beyond: 2.2-2.5%
The unemployment rate will drop to between 6.3 - 6.6% by the end of the year. That's below the Fed's 7% target. After that, it will continue to fall to at least 6.1% in 2015, and 5.8% in 2016.
Inflation will be between 1.4 - 1.6%. The core inflation rate (without gas or food prices) will be the same, well below the Fed's 2% target, for 2015 and beyond. (Source: FOMC meeting, December 18, 2013)
Interest Rate Outlook
The Federal Reserve clearly gives forward guidance for its monetary policy which guides interest rates. It's told the business community and consumers that the Fed funds rate will remain at near-zero until 2015. This controls short term interest rates, and assures us that variable and other short-term rates will remain at record-low levels.
The FOMC said that it will begin tapering quantitative easing through 2014. This means there will be less demand for Treasuries. That affects fixed-interest and longer-term rates, which follow the 10-year Treasury yield. This yield will probably rise to 3% as the Fed continues to reduce its purchases.
However, the Treasury yield also depends on demand for the dollar -- if demand is strong, yields will drop,and vice-versa. As the global economy improves, demand for this ultra-safe investment will decline as investors search for greater return. As a result, expect long-term and fixed interest rates to rise in 2014 and beyond.
The U.S. Energy Information Administration (EIA) outlook is from 2011-2040. It predicts average annual GDP growth rate to be 2.5%, with unemployment falling to 5.9%, and the Fed funds rate rising to 3.4%. U.S. crude oil production will increase by 234,000 barrels per day (bpd) through 2019, when it reaches 7.5 million bpd. This is because of increased onshore oil production from shale oil. Natural gas production also increases, allowing the industrial and electric power sectors to lower costs over the next 15 years. Industries, especially chemical production, increases natural gas use by 16%, from 6.8 trillion cubic feet per year in 2011 to 7.8 trillion cubic feet per year in 2025. Electricity generation increases its reliance on renewables from 13% in 2011 to 16% in 2040.
At the same time, regulations increase new vehicle fuel economy from 32.6 miles per gallon (mpg) in 2011 to 47.3 mpg in 2025. As a result of improved energy efficiency of energy use and a shift away from the most carbon-intensive fuels, U.S. energy-related CO2 emissions are more than 5% below their 2005 level through 2040. (EIA Short-term Energy Outlook; 2013 Annual Energy Outlook)
The Bureau of Labor Statistics publishes an outlook for U.S. employment each decade. It goes into great detail about each industry and occupation. Overall, the BLS expects total employment to increase by 20.5 million jobs from 2010-2020. While 88% of all occupations will experience growth, the fastest growth will occur in health care, personal care and social assistance, and construction. Furthermore, jobs requiring a master’s degree will grow the fastest, while those that only need a high school diploma will grow the slowest. (Source: BLS Occupational Outlook Summary)
The BLS assumes that the economy will fully recover from the recession by 2020, and that the labor force will return to full employment, or an unemployment rate of 4-5%. The biggest growth (5.7 million jobs) will occur in healthcare and other forms of social assistance as the American population ages.
The next largest increase (2.1 million jobs) will occur in professional and technical occupations. Most of this is in computer systems design, especially mobile technologies, and management, scientific, and technical consulting. Businesses will need advice on planning and logistics, implementing new technologies, and complying with workplace safety, environmental, and employment regulations.
Other large increases will occur in education (1.8 million jobs), retail (1.7 million jobs) and hotel/restaurants (1 million jobs). Another area is miscellaneous services (1.6 million jobs). This includes human resources, seasonal and temporary workers, and waste collection.
As housing recovers, construction will add 1.8 million jobs, while other areas of manufacturing will lose jobs due to technology and outsourcing. For more detail, see BLS Outlook on Employment. Article updated January 13, 2014