Three highly credible organizations, the Federal Reserve, the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD), both predict 2-3% GDP growth for 2013 IF the U.S. government can:
- Avoid sequestration. Instead, Federal spending reductions should total no more than 1.25% of GDP, and should be phased in gradually.
- Raise the debt ceiling without another crisis.
- Reform entitlement spending and the tax code.
The IMF notes that growth is assisted by improved bank lending, lower household debt and a turnaround in the housing market. The U.S. will benefit from a stabilizing global economy, as long as the European Union (EU) continues to address its debt crisis. It can also increase its exports to the rapidly expanding emerging markets, which are expected to grow 5.5% in 2013. On the whole, the global economy will grow 3.5% in 2013, and 4.1% in 2014. (Source: World Economic Outlook Update, January 23, 2013)The OECD predicts the U.S. will grow 1.9% in 2013, and 2.8% in 2014. This is much better than the .6% contraction in the EU in 2013, and the mild 1.1% growth rate in 2014. The difference is in the different responses to the 2008 financial crisis. Many EU countries have re-entered economic contraction, and joblessness is growing. The U.S., on the other hand, has a recovering housing market, regained confidence in business and increased consumer spending. The OECD suggests that both the U.S. and EU should continue expansionary fiscal and monetary policy, while keeping an eye on inflation.(Source: OECD Outlook, May 29, 2013)
Energy OutlookThe U.S. Energy Information Administration (EIA) provides an outlook from 2011-2040. During that time period, the average annual GDP growth rate is 2.5%, while unemployment falls to 5.9%, and the Fed funds rate rises to 3.4%. During that time period, U.S. crude oil production increases by 234,000 barrels per day (bpd) through 2019, when it reaches 7.5 million bpd. This is because of increased onshore oil production, particularly from shale and fragging. 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)
Employment OutlookThe 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.
Interest Rates OutlookThe brightest spot in the economic picture is monetary policy, which guides interest rates. The Federal Reserve clearly sets expectations for the business community and consumers by telling us that the Fed funds rate will remain at near-zero until 2015, and that quantitative easing will remain in place until either the unemployment rate drops to 6.5% or the core inflation rate rises above the Fed's 2% target. This assures us that variable and other short-term rates will remain at record-low levels.
However, fixed-interest and longer-term rates follow the 10-year Treasury yield. That is guided by 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 interest rates to rise in 2013 and beyond. Article updated September 18, 2013