Economists with the National Association for Business Economics (NABE) expect real GDP growth of 2.8 percent in 2014, up from the 2.1 percent rate anticipated for 2013. While this represents an acceleration in growth, it also suggests a slight downgrade from the 3.0 percent pace for 2014 predicted in the September survey. Some marginal easing in the paces of growth for consumer spending, business investment, and net exports accounted for the difference.
Still, the overriding news in this report was the pickup in activity expected next year. For manufacturers, industrial production is predicted to expand from its 2.4 percent annual pace in 2013 to 3.1 percent growth in 2014. This mirrors the increased pace of new orders and output that we have seen in the sector since the beginning of the third quarter, and it is consistent with the findings from the latest NAM/IndustryWeek survey. In terms of auto production, light vehicle sales should rise from an average of 15.5 million annualized units this year to 16.1 million units next year, according to those completing the NABE survey.
The labor market is also expected to improve in 2014, with an average of 197,000 nonfarm payroll workers added each month next year. This would be higher than the 178,000 average stated by the survey respondents as the average for 2013. Note that we have already seen job growth that has accelerated in recent months, according to the Bureau of Labor Statistics, with an average of 204,000 nonfarm payrolls added between August and November. The unemployment rate is also predicted to move lower, with at least some of the survey respondents anticipating 6.5 percent rate by the fourth quarter of 2014.
Business economists expect inflationary pressures will remain under control, with consumer prices rising just 1.8 percent in 2014. They do, however, forecast that the average 10-year Treasury note yield will increase to 3.25 percent next year, even as the Federal Reserve keeps short-term interest rates near zero. Recently, the run-up in mortgage rates has caused some “sticker shock,” dampening the demand for new homes, but the housing market should begin to grow again. Survey respondents predict that housing starts will rise to 1.1 million in 2014.
In terms of downward risks to economic growth, 73 percent of business economists said the government shutdown would reduce fourth quarter real GDP by up to 0.5 percentage points. Only 20 percent felt that there would be another government shutdown in January. However, across-the-board cuts to the federal government would have a negative impact to real GDP in 2014, with 76 percent feeling that sequestration would reduce output by up to 0.5 percentage points. Panelists also felt that the Affordable Care Act could reduce nonfarm payrolls by an average of 10,000 each month.
Chad Moutray is the chief economist, National Association of Manufacturers. Note that he was one of the panelists for the Deember 2013 NABE Outlook Survey.