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5 Reasons Why 2014 Will Be The Best Growth Year For The American Recovery

Calculated Risk   

5 Reasons Why 2014 Will Be The Best Growth Year For The American Recovery
Stock Market1 min read

Six weeks ago I wrote: Comment: Looking for Stronger Economic Growth in 2014. I listed several reasons for a positive outlook, and if anything, I'm a little more optimistic now. Here are a few reasons:

1) The apparent budget deal takes a key downside risk off the table, and reduces the impact of the sequester.

2) Household balance sheets are in much better shape - and it appears that in the aggregate, household deleveraging is over. The Fed just reported the first increase in total mortgage debt since Q1 2008. See: Fed's Q3 Flow of Funds: Household Mortgage Debt increased slightly, First Mortgage Debt increase since Q1 2008, NY Fed: Household Debt increased in Q3, Delinquency Rates Improve, and Fed: Household Debt Service Ratio near lowest level in 30+ years

3) State and local government austerity is over (in the aggregate).

4) The housing recovery should continue. Housing has slowed recently (new home sales, housing starts), but the overall level is still very low and I expect further growth in 2014.

5) Commercial real estate (CRE) investment will probably make a small positive contribution in 2014.

Eliminating drags is important. The drag from state and local governments is over. The drag from household deleveraging (in the aggregate) is ending. The threats of a government shutdown, not "paying the bills", and mindless austerity is over (assuming the budget deal is approved). And CRE investments are starting to appear.

All of these were impediments to growth over the last few years.

Yes, growth in the auto industry will slow in 2014, and housing has slowed recently (but I think we will see more growth in 2014). However, overall it appears 2014 will probably be the best growth year for the recovery (the best was 2012 with 2.8% real GDP growth), and possibly the best year since Clinton was President.

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