What to expect in the year ahead
The past 12 months have seen mostly good news for the national economy, but what should companies in construction, the restaurant industry, hospitality and others expect in the year ahead?
One of the nation’s best-respected economists, Mark Zandi, thinks there’s reason for optimism.
Zandi, the chief economist of Moody's Analytics, has just put pen to paper to share some his thoughts for the new year.
Here’s some of what he had to say, starting with the reasons for hope:
- While the economy is fast approaching full employment, for much of the recovery, wages have grown only at about the rate of inflation. As we reach full employment, pay should grow much more quickly, boosting consumer sentiment and spending.
- Because we produce a lot more energy than we used to, thanks to the shale revolution, the slide in oil prices will lift more than the vehicle industry.
- Consumers stand to get a huge windfall. Gasoline prices have plunged more than a dollar a gallon since the summer. If this continues, consumers will put $125 billion less in their gasoline tanks in 2015. And that should be very good for restaurants, retailers and other businesses.
- Apartment construction is already the bright spot in the housing market, and it is sure to get brighter. Mortgage rates have dropped again, and getting a mortgage will soon be easier. Mortgage finance giants Fannie Mae and Freddie Mac recently signaled a greater willingness to lend by lowering their minimum down payment requirement from 5 percent to 3 percent.
There are threats, too:
- There’s the very good chance the Federal Reserve will begin to raise interest rates.
- The U.S. is also vulnerable to a softer global economy. With the euro zone and Japan flirting with recession, and China's growth steadily throttling back, U.S. trade will no doubt erode.
- Russia's economic problems are by themselves not a reason to worry, but the pressure they put on President Vladimir Putin could be. Sharply lower oil prices, Western economic sanctions, and the collapsing ruble and resulting higher inflation and interest rates are suffocating Russia's economy.
- Once full employment is achieved, economic growth could slow sharply. This will hurt living standards, particularly for lower-income households, and undermine the government's fiscal situation.
Despite these reasonable concerns, Zandi says betting against the American economy remains a bad strategy.
“The bad times are ending,” he said. “Many of the economic wrongs have been righted. Households have de-leveraged, the financial system has recapitalized, and U.S. businesses have reduced their cost structures and are highly competitive.
“Serious problems remain and politics complicate our ability to address them. But if history is any guide, we will.”