Coverage: Predicting the state of the U.S. economy

It’s a new year and that means it’s time for predictions about where the economy will be strongest and where we might see some weakness. The predictions by many of the leading business reporters were varied.

The Wall Street Journal story by Josh Zumbrun said that 2014’s strong showing would carry into the next year:

The U.S. economy enters 2015 with the strongest momentum in at least a decade and as the fittest of all the industrialized nations. The question is whether that muscle can help yank the rest of the world out of its doldrums.

“Our expectation is for a fairly robust U.S. economy, and that’s where the good news starts and ends,” said Adolfo Laurenti, chief international economist for investment and advisory firm Mesirow Financial. “Everything else in the world looks choppy.”

The nation added 2.7 million jobs in 2014 through November, the best year for employment growth since 1999. Economic output registered its best six-month stretch since 2003. Claims for jobless benefits have been running lower than at any point since 2000.

But after six slow years of economic recovery, the test for the U.S. is no longer just about overcoming employer reluctance to hire and lingering damage from the housing bubble. It is whether the U.S. can thrive when so much of the world is stumbling.

Neil Irwin’s Upshot column in The New York Times pointed out some of the biggest developments that will affect this year, including dropping oil prices and rising rates:

It was a confounding year in global financial markets. Not because it was a disaster for most investors; American stocks and bonds both rose in value. It was confounding because of some major moves that defied expert consensus this time a year ago — not only what was predicted, but what was even thought plausible.

But by understanding what the biggest market moves were, you can also understand the forces that will shape the global economy in 2015.

There was an epic collapse in oil prices.

It’s not that the price of oil has never moved as far and as fast as it did in 2014. It’s just that usually when that happens, it occurs against the backdrop of much more global volatility, like in a worldwide recession at the end of 2008 and early 2009.

What’s remarkable about the roughly 50 percent decline in the price of oil in the second half of the year is that it occurred amid such stability; nothing radical changed in that time about either the global economic outlook or even the supply and demand picture for oil itself.

Jeffrey Bartash made five predictions for MarketWatch, including that wages would rise next year, welcome news for many:

Wages will finally accelerate after years of stagnation

One of the main shackles on the economy over the past four years has been stagnant wages. Hourly earnings have risen an average of 2% annually — just two-thirds of the long-term U.S. average.

Yet that’s finally about to change. With hiring up and unemployment falling, businesses will have to go the extra mile for employees or risk losing sales to competitors because they lack enough staff to boost production.

“Everywhere I go business owners are seeing an increase in demand,” said Gus Faucher, senior economist at PNC Financial Services. “Businesses will have to raise wages to attract or maintain workers.”

Businesses are already responding: Job openings in November hit the second highest level in 14 years. In another telltale sign, people are quitting jobs at the fastest rate in five years. Research shows that people who quit one job for another typically do so because they are offered higher pay.

Bloomberg’s Joseph Ciolli said that the bull market would likely continue:

The biggest bull market since the 1990s powered higher as $1.1 trillion was added to American share values and the S&P 500 overcame five separate declines of 4 percent or more. The gauge never once fell more than three straight times, a first in data compiled by Bloomberg going back to 2000.

For a fourth consecutive year, turbulence abated in the American equity market. The Chicago Board Options Exchange Volatility Index (VIX) averaging 14.17 over 250 market days. That’s down from 14.23 in 2013 and less than half the level in 2009, the first year of the bull market.

An average of 6.4 billion shares changed hands each day in all U.S. equities, up about 3 percent from 2013 for the first gain since at least 2009. About $258 billion of stock traded each day, up 17 percent from a year earlier, reflecting higher prices for equities.

“The resilience has been tied to inflows from offshore from around the world to the American stock exchanges, primarily because the American economy looks to be one of the more sound ones and because of the oil decline,” Skip Aylesworth, a portfolio manager at Hennessy Funds in Boston, where he helps oversee about $5 billion, said by phone. “People that want money invested are putting it in America.”

Given all of these predictions, it seems like 2015 is going to be a good one for investors and the U.S. economy. What isn’t clear is what could potentially derail it. Dropping oil prices are good for consumers, but not great for some industries. Long-term interest rates are also declining, making it harder to earn a return. It’s also true that anything can happen and it’s hard to know where we’ll be this time next year, but it sure is fun to try to figure it out.