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Originally published December 16, 2013 at 9:01 PM | Page modified December 17, 2013 at 10:54 AM

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Outlook strong for U.S. economy in 2014

The overall economic outlook for the U.S. has improved sharply in recent weeks amid a string of surprisingly robust economic data.


Los Angeles Times

Signs of economic growth

+129

Points the Dow Jones industrial average rose Monday, after being mostly down for 2 weeks.

+3%

Economic growth expected by economists in 2014, up from 2% the past 4½ years.

+1.1%

Increased production by factories, mines and utilities in November from previous month.

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WASHINGTON — After six years of a gloomy recession and shaky recovery, the U.S. economy looks poised to regain its glow next year with stronger job growth, bigger income gains for more people and a resurgence of homeowners moving up into new digs.

The overall economic outlook for the U.S. has improved sharply in recent weeks amid a string of surprisingly robust economic data: Businesses have stepped up hiring, new factory orders from abroad are at a two-year high, and consumers have been flocking to car lots and restaurants.

State and local governments that not long ago were in massive retrenchment are spending more too.

“We could see the unemployment rate down to 6 percent this time next year,” said Robert Kleinhenz, chief economist for the Los Angeles County Economic Development Corp.

That would be a full percentage point below the current national rate and, in some analysts’ views, close to full employment.

Stocks raced higher Monday after two down weeks, as investors warmed up to the idea the economy is getting better. The Dow Jones industrial average rose 129 points, or 0.8 percent, to close at 15,884.57.

Some experts say economic growth could be even stronger next year now that the House of Representatives has approved the bipartisan two-year budget deal, which is likely to be approved by the Senate this week.

Not only would the agreement undo most of the sequestration spending cuts in the short term, it would lower a major confidence hurdle for businesses, some of which complained they have been hamstrung by the government’s repeated budget standoffs and partisan warring.

“If that is dealt with, that goes a long way toward reducing uncertainty,” said David Hannah, chief executive of Reliance Steel & Aluminum in Los Angeles.

Even before the budget deal, Hannah was preparing for a marked step-up in business next year — and more aggressive hiring to add to his company’s worldwide workforce of about 14,000.

Hannah said the steel company got a good boost from the buoyant auto industry as well as its other mainline customers: aircraft makers, oil and gas firms and electronics companies.

Reliance’s biggest source of revenue, nonresidential construction, has been lagging since the recession. But Hannah sees more demand next year as increased homebuilding creates the need for more supermarkets, medical offices and other commercial and industrial development.

All in all, many economists now see economic growth climbing to a solid 3 percent next year, a significant improvement from the 2 percent average annual pace the economy has been stuck on for the past 4½ years.

An acceleration to 3 percent would probably push up U.S. job growth to 250,000 a month on average, from a monthly average of 190,000 in the past 12 months, Kleinhenz said.

At that pace, the nation would recover all the jobs lost in the recession by the end of 2014. And it would push down the jobless rate closer to the range of 5.5 to 6 percent that some now see as the potential long-term unemployment rate.

Meanwhile, the Federal Reserve said Monday that industrial production grew last month at the fastest pace in a year, pushing manufacturing output above its pre-Great Recession peak for the first time.

The nation’s factories, mines and utilities increased production 1.1 percent in November from the previous month, the Fed said. October’s industrial production was revised up to a 0.1 percent increase from an initially reported 0.1 percent drop.

Year-over-year, industrial production rose 3.2 percent last month as demand has increased domestically and abroad. U.S. exports hit a record high in October as Europe emerged from a long recession and other global economies expanded.

November’s big gain in industrial production surprised economists, who had projected it to rise about 0.6 percent.

“Production, put simply, is on a tear and fits with the record level of goods exports we have seen recently,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York.

“The economy has reached escape-velocity,” he said.

Although the external and internal conditions look better — Europe is recovering and U.S. debt burdens are lighter — there are new risks on the horizon.

Perhaps the biggest is that interest rates have risen since summer and are likely to tick higher as the Federal Reserve begins to pull back on its $85 billion in monthly bond purchases, a key stimulus aimed at spurring the recovery.

The Fed’s bond-buying and other stimulus efforts have helped drive stock prices to record highs, which in turn power more investments and spending, especially among the richest Americans.

Federal Reserve reports show that in the third quarter, U.S. households as a whole had recouped nearly all the wealth lost during the Great Recession, although that can’t be said of the average household.

Analysts doubt such hefty stock appreciation will continue next year. Wealth is more likely to be generated by home-equity gains and thus spread proportionately a little more to middle-class Americans.

The coming year also could mark a new stage in the housing market’s recovery: “2013 was the year of the investor,” said Jed Kolko, chief economist at the real-estate website Trulia, “but 2014 will be the year of the repeat homebuyer.”

Some analysts say next year could be a breakout year for the U.S. consumer.

On one side, households are in better shape to spend. Many have paid down their credit-card and other debts over the last few years; their average debt-servicing burden is now as low as it has been in a generation.

On the other side, many U.S. households have put off buying cars, appliances and other big-ticket goods. Young adults have delayed moving out on their own or starting families.



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