2015 Economic Crystal Ball
No rest for the weary or hung over…time to dust off the crystal ball to see what lies ahead! Global Economy: After increasing at an estimated 2.4 percent rate in 2014, economists expect that U.S. GDP will pick up to 3 percent this year, which would be the strongest growth in a decade. Since 2000, the fastest real GDP growth was 3.8 percent in 2004, and the fastest growth for the recovery was 2.5 percent in 2010. The dot-com meltdown, plus the financial crisis has taken a toll on the U.S. economy since 2000, with an annualized pace of 1.9 percent, well below the post World War II average of 3.3 percent.
The drivers of growth include: consumers, who after paying down lots of debt, should see wage gains and will continue to enjoy the benefits of low energy prices; state and local governments, which have stopped slashing budgets and may spend a bit more freely; and the housing market, which after taking a breather in 2014, should contribute more to the economy in 2015.
Outside the U.S., the picture is more complicated. China’s double-digit growth rates are a thing of the past, as the world’s second largest economy attempts to impose controls that will likely keep GDP at six to 7 percent in the year ahead. Japan and Europe are still battling low prices, which is why central banks in both areas are likely to crank up efforts to defend against inflation. Emerging markets will continue to diverge, with countries that have not addressed economic imbalances, like Russian, Brazil and Venezuela struggling, while more balanced economies, like India, Thailand and Chile should be better positioned for growth.
2015 Year of the Raise: If 2014 was the year of the job (probably the best year for job creation since 1999), economists are hopeful that 2015 will be the year of the raise. Wage growth has remained stubbornly at 2 percent during the recovery, but this year, the improving economy and labor market should help wage growth finally start to outpace the rate of inflation.
Federal Reserve Rate Hikes: With bond buying over, the big question for 2015 is: “When will the Fed FINALLY increase short-term interest rates?” Reading between the lines of central bank speeches, statements and press conferences, most believe the first rate hike will occur in the third quarter of the year. Goldman Sachs analysts’ noted that once the Fed starts the process, it could move faster than the market now expects.
Oil: At her last press conference of the year, Janet Yellen called low oil a “transitory” phenomenon, which loosely translated means “Don’t get too used to those cheap gas prices!” The reason is that supply and demand will surely change. If the global economy picks up, so too will demand for oil, but these changes often occur slowly, which is why some economists are predicting that oil prices will likely remain in a range of $50 to $75 a barrel in 2015.
2014 MARKETS:
- DJIA: 17,823.07, up 7.5% (6th annual gain, longest streak since 1990s)
- S&P 500: 2058.90, up 11.4% (up an average of 20.7% a year for the last 3 years including dividends, its best three-year returns since the late 1990s)
- NASDAQ: 4736.05, up 13.4%
- Russell 2000: 1204.70, up 3.53%
- Stoxx Europe 600: 342.54, up 4.35%
- Argentina Merval: 8579.02, up 59.14%
- Shangahi A Shares (Mainland China): 3389.40, up 53.06%
- RTS Russia: 790.71, down 45.19%
- 10-Year Treasury yield: 2.173% (from 3.03% a year ago)
- February Crude Oil: $53.27, down 46% (lowest level since May, 2008)
- February Gold: $1,184.10, down 1.5%
- WSJ Dollar index: 83.04, up 12% (highest level since Sep 2003)
- AAA Nat'l average price for gallon of regular Gas: $2.24 (from $3.32 a year ago)
THE WEEK AHEAD:
Mon 1/5:
Automobile Sales
Tues 1/6:
9:45 PMI Services Index
10:00 Factory Orders
10:00 ISM Non-Mfg Index
Weds 1/7:
8:15 ADP Employment Report
8:30 International Trade
2:00 FOMC Minutes
Thurs 1/8:
8:30 Weekly Jobless Claims
3:00 Consumer Credit
Fri 1/9:
8:30 December Jobs Report
10:00 Wholesale Trade