Date of this Version
Business in Nebraska, VOLUME 69, NO. 709, JULY 2014
After shaking off its winter doldrums, the U.S. economy has begun to accelerate, and can expect to experience strong growth through the remainder of 2014. From a cyclical perspective, the national economy is in a “sweet spot.” Fiscal austerity has ended but monetary restraint has only just begun, with the Federal Reserve taking the tentative first step of phasing out its bond purchases. In the real economy, stronger job growth and steadily falling unemployment rates are supporting growth in consumer spending on housing, automobiles, retail and services. Yet, unemployment remains high enough that there is little upward pressure on wages, a positive for business. The net effect is that the U.S. economy should grow by more than 3% over the last three quarters of 2014.
However, there will be more to discourage growth as time passes. Monetary restraint will begin to impact growth in 2015 as the Federal Reserve moves to raise short-term interest rates. Wage pressures also will begin to rise in 2015 as the unemployment rate continues to fall. Further, the relative strength of the U.S. economy will lead to a rising U.S. dollar, which will pressure export-oriented businesses, particularly in manufacturing and agriculture. Finally, an aging population will limit economic growth by slowing growth of the labor force. All of these factors will cause the rate of growth to moderate in 2015 and 2016. And, further risks are possible. For example, strife in the Middle East could lead to higher energy prices. Public policy also will limit growth. Regulation of the health care and banking industries continues to impact the economy. Further, new regulations on electric utility emissions have the potential to raise energy prices, depending on how these regulations are implemented.
The economy also is harmed by inaction on several key public policy issues. Specifically, there is an unmet need to pass immigration reform, tax reform, and entitlement reform. Reforms to simplify the tax code and increase legal immigration would generate supply side benefits to economic growth. Reform of entitlement programs would aid growth by lowering expectations regarding future taxes. These key reforms, unfortunately, seem unlikely to be addressed during the forecast period. This is another reason we anticipate moderate rather than strong economic growth in 2015 and 2016. ...
The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were: John Austin, Bureau of Business Research, UNL (retired); David Dearmont, Nebraska Department of Economic Development; Chris Decker, Department of Economics, UNO; Tom Doering, Nebraska Department of Economic Development (retired) Ernie Goss, Department of Economics, Creighton University Phil Baker; Nebraska Department of Labor; Ken Lemke, Nebraska Public Power District; Scott Loseke, Nebraska Public Power District; Brad Lubben, Department of Agricultural Economics, UNL; HoaPhu Tran, Nebraska Department of Revenue; Scott Strain, Greater Omaha Chamber of Commerce; Eric Thompson, Department of Economics and Bureau of Business Research, UNL