US Economic Forecast, December 2013

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US Economic Forecast, December 2013

US Economic Forecast, December 2013

Despite a hit to government productivity—some agencies have lost a month to the shutdown and the need to address budget uncertainty—most US economic actors were not affected. The economy continues to grow at a moderate 2.0 percent underlying rate, and circumstances continue to point to an acceleration of growth in the medium term.

Overview

The federal government’s fiscal crisis dominated economic news for much of the past couple of months. The 16-day shutdown of “nonessential” government services reflected severe political problems, but it ultimately had little impact on the wider economy. Despite a hit to government productivity—some agencies have lost a month to the shutdown and the need to address budget uncertainty—most US economic actors were not affected. The economy continues to grow at a moderate 2.0 percent underlying rate, and circumstances continue to point to an acceleration of growth in the medium term.

The fundamentals of the US economy did not change before or after the fiscal crisis. US households still have much stronger balance sheets than they have had for many years. US businesses still have cash, and they will spend it once they see business picking up. The scary confidence numbers that came out in the weeks after the financial crisis told us little about actual behavior. The steep drop in consumer confidence in October was followed by a strong increase in retail sales in the next two months.

The attention span of economic agents in the United States can be relatively short, and in this case, that would be a smart reaction to the outcome of October’s fiscal crisis. The main political outcome now appears to have been an agreement to avoid such problems in the future, reflected in the December Ryan-Murray budget agreement. That’s a plus for the economy, as it removes one source of uncertainty.

Meanwhile, Europe and China are still finding their way out of their respective sets of problems. It’s pretty messy in both places, but the chance of a serious financial crisis seems to be fading—although it’s not gone. The Deloitte economic forecast includes a low-probability scenario in which another financial crisis generates a recession in the United States, but the probability is only 5 percent.

Don’t be distracted by huge arguments over small changes in economic policy. With medium-term fundamentals still looking good, and the resolution to the budget crisis allowing a little more government spending, the US economic outlook remains very positive.

The economy continues to grow at a moderate 2.0 percent underlying rate, and circumstances continue to point to an acceleration of growth in the medium term.

ScenariosScenarios

The Deloitte baseline forecast describes the most likely future for the economy. There are plenty of reasons why actual economic growth might be better or worse than the baseline. The following three scenarios illustrate different possible future paths of the US economy that are worth thinking about. Deloitte’s economic forecasting team places the following probabilities on the baseline and each of the scenarios.

The baseline: The most likely outcome for the economy is a burst of mildly faster growth as risks from abroad and at home dissipate. Continued improvement in the labor market, evident now in the strong housing and auto markets, combines with continued improvement in the US trade balance to convince business leaders that the economy is really improving. Business investment then joins to add to demand. While hiring picks up and the unemployment rate continues to fall, the large amount of slack prevents rising demand from being translated into higher prices. With inflation tame, the Fed is able to gradually reduce the level of quantitative easing, and by late 2015, to begin raising interest rates.

Recession: Euro problems flare up, and Europe goes back into recession. One or more countries are forced to exit the euro, leaving questions about the valuation of euro assets. Unfortunately, those questions spread to several US financial institutions that found themselves long on euro assets at the wrong time. The result is a global financial panic. China’s own financial bubble finally catches up with the country, adding to the panic. Chinese and East Asian growth sputters. Capital flows into the United States to avoid risk in Europe and Asia, and the dollar appreciates. The combination of low foreign demand and financial panic throws the US economy into recession. Timely Fed action offsets the financial crisis after several months, but the impact of low demand, a troubled financial system, and the resulting hit to confidence keep the economy growing slowly for years.

Continuing slow growth: Weak economic conditions abroad, incomplete fixes to the financial system, and a mismatch between the labor needs of business and the skills of the labor force leave the US economy growing at 2 percent for the next few years. Government spending continues to grow much more slowly than the overall economy, and foreign conditions do not improve. As the long-term unemployed become essentially unemployable, the labor force participation rate remains low, and yet, wages start to rise. The hoped-for improvement in competitiveness from domestic energy production proves to be less impressive than expected. Incipient signs of inflation cause the Fed to taper earlier than expected and raise interest rates as wage inflation starts to rise.

Coordinated global boom: Europe begins to successfully restructure and starts recovering at a fast rate. Emerging market countries also pick up momentum as financial problems are resolved in China, and India and Brazil start to adopt more reforms. Capital flows out of the United States and into Europe and the developing world, which causes the dollar to depreciate, further enhancing US exports. Lower energy prices in the United States make the country even more competitive. At home, resolution of budget issues at both the federal and state levels allows more money to flow into infrastructure investment, creating short-term demand and long-term productivity growth.

Figure 1

What’s been happening?

The big story in the past few months was the budget crisis in October. The crisis was caused by two deadlines occurring within a few weeks of each other:

  • The US fiscal year ends on September 30, and US law requires that Congress pass, and the president sign, laws to allow US government agencies to spend money. Congress wasn’t able to pass the necessary appropriations bills, leaving the US government without the authority to spend money.
  • US government borrowing was expected to hit the legal ceiling in late October. Without a change in the ceiling—set by law—the US Treasury would not have been able to borrow additional funds, and would likely have been unable to pay the government’s bills. This would have been a technical “default” of the US government.

It’s important to keep in mind that these problems were not related to economic fundamentals. The US government—unlike many other countries that have faced fiscal crises—can easily obtain the cash to pay its bills if it needs to. The tax collection system is effective, the tax burden is moderate, and investors are practically falling over themselves to lend money to the US government. From an economic point of view, October’s fiscal crisis was an entirely self-inflicted wound.

It’s important to keep in mind that these problems were not related to economic fundamentals. The US government—unlike many other countries that have faced fiscal crises—can easily obtain the cash to pay its bills if it needs to.

Now, that doesn’t sound reassuring. And yes, it’s true that Congress’s initial response was to push off any difficult decision making. But the positive fundamentals meant that politicians could easily avoid repeating the problem if they wish—and they did agree to do so. The budget deal announced on December 11 effectively removes the possibility of a budget crisis from the political and economic calculus for another two years.

One definite result of the budget crisis is that Fed “tapering” was put off. The fiscal crisis introduced enough uncertainty into the economy that the Fed is almost certain to delay action at least until next spring. The Fed’s new chair, Janet Yellen, will continue Chairman Bernanke’s policy of taking great care to avoid damaging the still-weak economic recovery. Dr. Yellen has been tagged as a “dove,” but that may be simplistic. She’s stated in the past that she wouldn’t hesitate to tighten if circumstances required it. But today, circumstances require the opposite. The Fed is likely to continue its long-term asset purchase program, at least until March.

Sectors

Consumers

Ah, the US consumer—long-time supporter of the global economy, and still surprisingly resilient. Of course, consumers can’t spend money they don’t have, and their incomes are largely dependent on having jobs. As the US economy picks up its pace, and as jobs and incomes grow, consumer spending will respond. Just don’t expect US consumers to play Atlas and hold the global economy on their shoulders like they did in the 2000s. The Deloitte forecast expects the US saving rate to remain between 4.5 and 5.0 percent, a good bit higher than in the previous decade.

US households actually face some pretty daunting obstacles in their pursuit of the good life. The biggest of these is growing inequality. For more about this, see the Deloitte Review article “Mind the gap” by Ira Kalish. Many US consumers spent the 1990s and the 2000s trying to keep up their spending when incomes were stagnant. After all, they kept being assured that technology was transforming the US economy and should be transforming their lives. But now they are wiser (and older, which is another problem as retirements loom without sufficient savings). As long as a large share of the gains from technology and other economic improvements flow to a relatively small number of households, overall US consumer spending is likely to remain relatively restrained.

Figure 2

Consumer news

  • Confidence took a big hit during the fiscal crisis. The Rasmussen daily consumer confidence index dropped from 103 to 88 between October 1 and October 17. But within a month (by the middle of November), the index was back to the 100 level. Expect the big declines in the headline consumer confidence measures to likewise be reversed.
  • Job growth seems to have picked up in the third quarter to 200,000 per month, compared to 150,000 in the previous quarter. Unfortunately, the labor force participation rate remains low and falling.
  • Retail sales have been growing at a good pace. November sales showed spending on autos and other durable goods growing quite quickly. Consumers are clearly willing to spend when they have income.
  • Disposable personal income is growing at about 0.5 percent per month, and wage and salary income is growing at a similar rate. It’s enough to keep spending going, even if it’s not enough to push the economy into breakout growth.

Housing

It happens every year. Young people become old enough to leave home and start their own households. But it stopped happening during the recession. The number of households didn’t grow nearly enough to account for all the newly minted young adults. Those young adults would prefer to live on their own and create new households; as the economy recovers, they will do exactly that.

This means the fundamentals are excellent for residential construction. The United States hasn’t been building as many new housing units as the population would normally require for about five years, since 2008. In fact, housing construction was hit so hard that the oversupply then has turned into an undersupply now, so there’s a big hole that needs to be filled. We’re not returning to 2005, when housing construction powered the economy almost on its own, but this sector will likely be a big contributor to growth for a while.

Figure 3

Housing news

  • The level of housing starts has remained stuck at about 870,000 for about six months. Earlier in the year, it looked like housing construction was starting to accelerate, but at this point, it’s really just treading water.
  • Mortgage rates for 30-year loans are up about a percentage point from the early part of this year. That doesn’t mean they are high—at 4.5 percent, conventional mortgage rates are still very low by historical standards. But it’s another piece of news damping housing construction.
  • Home prices continued to rise, although at a slower rate than earlier this year.

Business investment

There’s a lot of sad talk about the impact of uncertainty on business decisions. See, for example, the NFIB’s study of small business attitudes. The press release for the study makes the claim that “New study finds economic and political uncertainty impediments to small-business growth” (although the actual study doesn’t seem to support this).1 So you might not realize that actual business spending in equipment and software has been the healthiest sector of the economy since the recovery started. If business equipment purchases have been growing slowly, it’s because there isn’t much reason to invest when spending in other sectors is growing so slowly. Many businesses are still waiting for assurance that they will have customers. Once those customers return, there will be even more reason to ramp up investment. Watch what businesses do, not what they say.

Figure 4

Business investment news

  • Shipments of nondefense capital goods less aircraft—the best high-frequency measure of equipment spending—has fluctuated within a narrow range for most of this year.
  • After rising in late spring, interest rates have stabilized. Stock prices have picked up, and the cost of capital remains quite low.

Foreign trade

The United States has long had a voracious appetite for foreign goods, and that’s not going to stop. Imports will grow at about twice the rate of GDP over the next few years, and they will accelerate along with GDP growth.

However, exports look to prove a pleasant surprise. There are two reasons why US exporters will be happy:

  1. A variety of improvements ranging from the United States’ lead in technology to cheap natural gas will help to make US manufacturing more competitive with foreign goods.
  2. As risks abroad recede, investors are going to be looking outside the United States for higher returns. That’s not a bad thing for the United States since we, after all, account for a lot of those investors. To get higher returns in places like Europe and Asia, investors will be selling dollar assets—and the exchange rate of the dollar will decline. A lower dollar is just fine if it helps improve US competiveness and puts capital where it does the most good globally, so the possibility of a depreciating dollar is to be welcomed.

Figure 5

Foreign trade news

  • Through September, exports were flat or falling, but they jumped in October. Exports have been trending upward over the past year.
  • The trade-weighted dollar has been fluctuating within a narrow (1–2 percent) range over the past few months. There has been little change in the incentives to export and/or import.
  • Economic news from Europe has been mixed, which is better than the uniformly bad news earlier this year. Japan appears to be recovering, and the Chinese economy is growing at a decent annual rate of about 7.5 percent.

Government

Government spending on goods and services has been stagnant, and the Deloitte forecast doesn’t see much change in the next few years. At the federal level, it is hard to see Congress and the president agreeing on significant new spending over the next five years. The recent budget agreement adds $44 billion to federal spending in 2014. This is a small but welcome increase from the point of view of supporting economic demand. It directly would add about 0.2 percentage points to the Deloitte growth forecast, although some of the spending increase will be offset by the increased fees included in the plan. The Deloitte forecast was locked before the plan was announced.

The good news for state and local governments is that they likely won’t have to keep cutting spending. State and local governments are getting some good news from rising house prices and growing employment. Tax collections are up, and that will remove some of the pressure on their budgets.

But those pesky pension liabilities continue to restrain state and local spending. The Congressional Budget Office estimates that there is a shortfall in state and local pension funding of $2–3 trillion.2 The need to fund these liabilities is likely to keep the lid on state and local spending growth.

Figure 6

Government news

  • Many federal agencies will likely struggle to recover from the effects of the shutdown. Not only did they lose over two weeks of work time, but the need for contingency planning took even more time away from their core tasks. And it’s not entirely over, so agencies will likely have to continue to delay work as long as the budget picture remains uncertain. Businesses and households needing to deal with the government for contracts, licenses, regulation, and other matters may continue to experience frustrating delays.
  • The federal deficit fell from 6.8 percent of GDP in FY 2012 to 4.1 percent in FY 2013. The $300 billion improvement in the deficit was mainly the result of higher tax revenues from growing economic activity. The deficit continued to improve in November.
  • Local government employment has been flat, while state employment has been growing slowly (at about 30,000 per month). State and local budget data from the second quarter—the latest available—show growing revenues, reflecting the continued economic recovery and growth in housing prices.
  • Congressman Ryan and Senator Murray agreed to a compromise budget plan for the next two years. The plan allows for spending to increase a bit above the sequestration limits, and allows Congressional appropriators more latitude in determining how to hit the budget targets. The next step will be for Congress to develop spending bills that meet the new targets.

Labor markets

If the US economy is going to produce more goods and services, it will need more workers. As long as the labor market is out of balance, the current moderate wage growth will eventually encourage firms to increase capacity by hiring workers. However, employment growth is more likely to occur in industries such as health care and recreation services than in manufacturing. Accelerating production will carry with it an eventual acceleration in employment—and even a mild acceleration in wages.

But a great many people have been out of work for a long time—long enough that their basic work skills may be eroded. When the labor market tightens up, will those people be employable? Once the employment-to-population ratio (rather than the unemployment rate) starts increasing and labor markets begin to tighten, the ultimate damage of the 2007–2009 recession will become measurable.

One unusual feature of the current recovery is the decline in the number of government workers. Government jobs were once thought of as recession-proof, but that’s not the case anymore. There isn’t a lot of desire for increased government spending. As a result, government employment is likely to grow slowly at best in the next few years, which may constrain job growth.

Figure 7

Labor market news

  • Initial claims for unemployment insurance went on a roller coaster ride. They dropped below 300,000 for one week in September, partially because of processing problems in California. Claims then popped up in October as the resolution of California’s backlog combined with the impact of the US government shutdown to push up the number of recorded claims. (Government employees could file for unemployment insurance but were counted separately. Contractors and others affected by the shutdown were included in the regular number.)
  • Job growth picked up in the fall, registering an average of 200,000 in the third quarter—and staying at that level in the first two months of the fourth quarter—despite the government shutdown. The labor force participation rate and the employment-to-population ratio continued to drop, however.

Financial markets

Interest rates are among the most difficult economic variables to forecast because movements depend on news. And if we knew it, it wouldn’t be news. The Deloitte interest rate forecast is designed to show a path for interest rates consistent with the forecast for the real economy. But the potential risk for different interest rate movements is higher here than in other parts of our forecast.

The Deloitte forecast sees interest rates headed up—maybe not this week, and maybe not this month. The forecast shows the economy regaining its health by late 2014, however, and a healthy economy will mean that lending will be once again become costly. The forecast moves interest rates back to “normal” interest rate levels as economic growth accelerates. That’s not a bad thing—unless returning to normal is bad.

Of course, some investors will be caught short. Those are the people who think that interest rates will remain low forever. Some of those will even be so-called sophisticated investors, so plenty of worried headlines will appear when interest rates go up. Don’t be fooled by what is just a welcome return to normal.

But the most sophisticated observers of financial markets know the most important thing about interest rates—they will fluctuate. This is the sector that is most likely to surprise us.

Figure 8

Financial market news

  • Markets were surprisingly optimistic during the fiscal crisis. As the possibility of a technical default came over the horizon, investors calmly put a discount only on Fed issues that might be affected while continuing normal trading in longer-term debt. Interest rates still reflect the run up in the spring, but they have not risen further since then.
  • The Fed announced the beginning of tapering, or reducing its purchases of longer-term assets, on December 12. The Fed will cut its purchases of agency securities—the main support for the mortgage market—by $5 billion per month, and its purchases of long-term Treasuries by another $5 billion. These cautious moves leave the monthly Fed purchase of longer-term debt at a still-hefty $75 billion per month.
  • Stock prices continued to soar, setting new records as of this writing.

Prices

Remember those folks who were convinced that the Fed’s actions in 2009 would create runaway inflation? They might rather you didn’t. Prices have been the most boring part of forecasting for the past five years, and there is no reason to think that’s going to change.

Inflation is hard to come by when the labor market—which accounts for two-thirds of all costs in the US economy—is so slack. Workers don’t have leverage to obtain higher wages when prices go up, and businesses don’t have pricing power to cover higher costs. Instead, shocks from higher energy or food prices have just dissipated into the ether rather than being translated into sustained higher inflation.

That means that inflation will remain tame at least until the economy reaches full employment. With a labor surplus of 10–12 million people, that will take a while even in our forecast. So don’t hold your breath waiting for the return of the 1970s. Bell bottoms, disco, and high inflation are all safely in our past (for now).

Figure 9

Price news

  • Consumer prices have been growing below 0.2 percent per month, quite a bit below the Fed’s target. Core inflation (less food and energy) has been even lower.
  • Labor productivity (output per hour) grew at an annual rate of almost 2.0 percent in the third quarter. Unit labor costs actually fell.

Appendix: Deloitte economic forecast

Table 1. Deloitte US Forecast: Baseline

Percent change, year-over-year unless otherwise noted.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP components
Real GDP -0.3 -2.8 2.5 1.9 2.8 1.6 2.4 3.4 4.0 3.6 3.1
Real consumer spending -0.4 -1.6 2.0 2.6 2.2 1.9 2.2 3.1 3.3 3.1 3.0
Real consumer spending, durable goods -5.1 -5.5 6.1 6.6 7.8 6.8 4.7 4.7 4.3 3.5 1.8
Real consumer spending, nondurable goods -1.1 -1.8 2.2 1.9 1.4 1.8 1.5 2.3 2.4 2.5 3.2
Real consumer spending, services 0.8 -0.8 1.2 2.1 1.6 1.1 2.0 3.2 3.4 3.2 3.2
Real investment in private housing -24.0 -21.2 -2.5 0.5 12.9 14.1 10.3 6.6 6.5 7.1 6.8
Real fixed business investment -0.7 -15.6 2.5 7.6 7.3 2.3 5.5 8.6 9.3 8.2 6.5
Real inventory accumulation -34 -148 58 34 58 65 69 71 73 70 54
Real exports of goods and services 5.7 -9.1 11.5 7.1 3.5 2.4 4.4 6.4 7.6 6.4 5.8
Real imports of goods and services -2.6 -13.7 12.8 4.9 2.2 1.5 3.9 6.6 5.5 5.4 5.9
Real government consumption and investment 2.8 3.2 0.1 -3.2 -1.0 -2.1 -0.2 0.7 1.0 1.2 1.2
Real federal government consumption and investment 6.8 5.7 4.4 -2.6 -1.4 -5.5 -2.2 0.3 0.8 1.4 1.5
Real state and local government consumption and investment 0.3 1.6 -2.7 -3.6 -0.7 -0.2 0.7 1.2 1.3 1.3 1.3
Prices
Consumer price index 3.8 -0.3 1.6 3.1 2.1 1.5 1.8 1.9 2.1 2.0 1.9
Chained price index for personal consumption expenditures 3.1 -0.1 1.7 2.4 1.9 1.2 1.7 1.7 1.8 1.7 1.7
Chained GDP price index 2.0 0.8 1.2 2.0 1.8 1.5 1.6 1.8 1.9 1.9 1.9
Employment cost index 3.0 1.7 1.9 2.0 1.9 1.9 1.9 3.1 4.3 4.5 4.3
CPI for energy products 13.7 -18.1 9.5 15.2 1.0 -0.4 2.2 2.7 2.6 2.2 2.0
Labor markets
Average monthly change in employment -232 -469 63 167 181 189 231 243 202 145 120
Unemployment rate 5.8 9.3 9.6 8.9 8.1 7.5 6.8 5.7 5.1 5.0 5.0
Employment-to-population ratio 0.62 0.59 0.58 0.58 0.59 0.59 0.59 0.60 0.60 0.61 0.61
Income and wealth
Real disposable personal income 1.5 -0.5 1.1 2.4 2.0 0.6 2.1 2.8 3.5 3.7 3.0
Net household wealth ($ trillions) 57 59 63 65 71 82 88 95 103 112 121
Personal saving rate (percent of disposable income) 5.0 6.1 5.6 5.7 5.6 4.4 4.4 4.1 4.4 5.0 5.0
After tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments -16.0 8.4 25.0 7.9 7.0 4.8 5.0 5.8 7.5 5.7 5.5
Housing
Housing starts (thousands) 900 554 586 612 783 909 1,109 1,438 1,690 1,772 1,796
Stock of owner occupied homes (millions) 130 131 132 132 132 133 134 135 136 137 139
Interest rate on 30-year fixed rate mortgages (percent) 6.04 5.04 4.69 4.46 3.66 3.96 4.39 4.72 5.32 6.15 7.02
Foreign trade
Current account balance, share of GDP (percent) -4.6 -2.6 -3.0 -2.9 -2.7 -2.3 -1.9 -2.0 -1.7 -1.6 -1.6
Merchandise trade balance ($ billions) -866 -547 -691 -786 -786 -721 -734 -798 -814 -857 -923
Relative unit labor costs (Index, 2008=100) 100.4 103.5 95.5 88.6 86.2 82.8 81.5 80.0 78.2 76.4 74.4
Financial
Federal funds rate (percent) 0.51 0.12 0.19 0.07 0.16 0.10 0.13 0.25 0.74 2.18 4.06
Yield on 30-year treasury bond (percent) 3.73 4.31 4.14 3.04 2.86 3.70 4.22 4.77 5.44 6.13 6.44
Government
Federal budget balance, unified basis ($ billions, fiscal years) -455 -1,416 -1,294 -1,297 -1,089 -680 -665 -591 -528 -522 -511
State and local budget balance ($ billions, NIPA basis) -165 -272 -237 -213 -253 -217 -159 -101 -57 -48 -49
Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Table 2. Deloitte US Forecast: Recession

Percent change, year-over-year unless otherwise noted.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP components
Real GDP -0.3 -2.8 2.5 1.9 2.8 1.6 0.9 1.2 2.6 2.8 2.3
Real consumer spending -0.4 -1.6 2.0 2.6 2.2 1.9 0.8 1.6 2.2 2.3 2.1
Real consumer spending, durable goods -5.1 -5.5 6.1 6.6 7.8 6.8 4.4 1.3 -0.2 3.3 3.8
Real consumer spending, nondurable goods -1.1 -1.8 2.2 1.9 1.4 1.9 0.0 0.9 1.8 1.7 1.9
Real consumer spending, services 0.8 -0.8 1.2 2.1 1.6 1.1 0.5 1.8 2.8 2.4 2.0
Real investment in private housing -24.0 -21.2 -2.5 0.5 12.9 14.2 9.0 4.0 4.7 7.5 7.7
Real fixed business investment -0.7 -15.6 2.5 7.6 7.3 2.3 3.4 0.8 4.5 5.1 3.5
Real inventory accumulation -34 -148 58 34 58 65 48 23 35 41 32
Real exports of goods and services 5.7 -9.1 11.5 7.1 3.5 2.4 -2.0 3.4 6.4 5.9 4.7
Real imports of goods and services -2.6 -13.7 12.8 4.9 2.2 1.6 0.0 3.2 4.6 4.6 4.0
Real government consumption and investment 2.8 3.2 0.1 -3.2 -1.0 -2.1 -0.2 0.8 1.0 1.2 1.2
Real federal government consumption and investment 6.8 5.7 4.4 -2.6 -1.4 -5.5 -2.2 0.3 0.8 1.5 1.5
Real state and local government consumption and investment 0.3 1.6 -2.7 -3.6 -0.7 -0.2 0.7 1.2 1.3 1.3 1.3
Prices
Consumer price index 3.8 -0.3 1.6 3.1 2.1 1.5 1.7 1.1 1.0 1.4 1.8
Chained price index for personal consumption expenditures 3.1 -0.1 1.7 2.4 1.9 1.2 1.7 1.0 0.8 1.1 1.6
Chained GDP price index 2.0 0.8 1.2 2.0 1.8 1.5 1.6 1.3 1.0 1.2 1.6
Employment cost index 3.0 1.7 1.9 2.0 1.9 1.9 1.7 2.1 2.6 2.8 3.1
CPI for energy products 13.7 -18.1 9.5 15.2 1.0 -0.4 1.8 -1.4 0.2 3.2 3.8
Labor markets
Average monthly change in employment -232 -469 63 167 181 194 33 85 121 141 185
Unemployment rate 5.8 9.3 9.6 8.9 8.1 7.5 7.6 8.2 8.3 8.4 7.7
Employment-to-population ratio 0.62 0.59 0.58 0.58 0.59 0.59 0.58 0.58 0.58 0.58 0.59
Income and wealth
Real disposable personal income 1.5 -0.5 1.1 2.4 2.0 0.6 1.5 2.0 3.0 2.9 2.3
Net household wealth ($ trillions) 57 59 63 65 71 81 79 72 76 83 84
Personal saving rate (percent of disposable income) 5.0 6.1 5.6 5.7 5.6 4.4 5.0 5.4 6.1 6.7 6.8
After tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments -16.0 8.4 25.0 7.9 7.0 5.0 0.0 1.8 5.4 6.4 3.7
Housing
Housing starts (thousands) 900 554 586 612 783 909 1,095 1,386 1,603 1,686 1,724
Stock of owner occupied homes (millions) 130 131 132 132 132 133 134 135 136 137 139
Interest rate on 30-year fixed rate mortgages (percent) 6.04 5.04 4.69 4.46 3.66 3.91 4.01 4.08 4.40 4.47 4.61
Foreign trade
Current account balance, share of GDP (percent) -4.6 -2.6 -3.0 -2.9 -2.7 -2.3 -2.2 -2.0 -1.8 -2.0 -2.3
Merchandise trade balance ($ billions) -866 -547 -691 -786 -786 -722 -780 -806 -820 -864 -925
Relative unit labor costs (Index, 2008=100) 100.4 103.5 95.5 88.6 86.2 82.8 81.8 79.7 76.9 74.4 72.6
Financial
Federal funds rate (percent) 0.51 0.12 0.19 0.07 0.16 0.13 0.13 0.13 0.13 0.13 0.13
Yield on 30-year treasury bond (percent) 3.73 4.31 4.14 3.04 2.86 3.71 3.08 3.52 3.72 3.97 4.22
Government
Federal budget balance, unified basis
($ billions, fiscal years)
-455 -1,416 -1,294 -1,297 -1,089 -680 -701 -838 -826 -859 -842
State and local budget balance ($ billions, NIPA basis) -165 -272 -237 -213 -253 -217 -167 -104 -118 -113 -111
Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Table 3. Deloitte US Forecast: Slow

Percent change, year-over-year unless otherwise noted.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP components
Real GDP -0.3 -2.8 2.5 1.9 2.8 1.6 2.2 2.3 1.9 2.3 2.0
Real consumer spending -0.4 -1.6 2.0 2.6 2.2 1.9 2.3 2.2 1.9 2.1 2.3
Real consumer spending, durable goods -5.1 -5.5 6.1 6.6 7.8 6.8 4.2 3.2 2.5 2.0 2.0
Real consumer spending, nondurable goods -1.1 -1.8 2.2 1.9 1.4 1.9 1.7 1.4 1.1 1.6 2.3
Real consumer spending, services 0.8 -0.8 1.2 2.1 1.6 1.1 2.2 2.3 2.1 2.4 2.4
Real investment in private housing -24.0 -21.2 -2.5 0.5 12.9 14.2 10.5 6.2 5.9 6.6 5.7
Real fixed business investment -0.7 -15.6 2.5 7.6 7.3 2.4 3.3 4.4 4.6 4.8 4.4
Real inventory accumulation -34 -148 58 34 58 65 61 44 34 30 28
Real exports of goods and services 5.7 -9.1 11.5 7.1 3.5 2.4 3.7 4.5 5.1 4.3 3.9
Real imports of goods and services -2.6 -13.7 12.8 4.9 2.2 1.6 3.4 3.2 5.8 4.9 6.7
Real government consumption and investment 2.8 3.2 0.1 -3.2 -1.0 -2.1 -0.2 0.1 0.6 1.0 1.2
Real federal government consumption and investment 6.8 5.7 4.4 -2.6 -1.4 -5.5 -2.2 0.2 0.7 1.4 1.5
Real state and local government consumption and investment 0.3 1.6 -2.7 -3.6 -0.7 -0.2 0.7 1.2 1.3 1.3 1.3
Prices
Consumer price index 3.8 -0.3 1.6 3.1 2.1 1.5 2.0 2.0 2.0 2.0 2.1
Chained price index for personal consumption expenditures 3.1 -0.1 1.7 2.4 1.9 1.2 1.9 1.9 1.8 1.7 1.9
Chained GDP price index 2.0 0.8 1.2 2.0 1.8 1.5 1.8 1.8 1.9 1.9 1.9
Employment cost index 3.0 1.7 1.9 2.0 1.9 1.8 1.9 3.2 4.2 4.3 4.3
CPI for energy products 13.7 -18.1 9.5 15.2 1.0 -0.4 2.3 2.0 0.5 0.5 2.9
Labor markets
Average monthly change in employment -232 -469 63 167 181 202 144 124 143 145 141
Unemployment rate 5.8 9.3 9.6 8.9 8.1 7.6 7.4 7.0 6.8 6.9 6.7
Employment-to-population ratio 0.62 0.59 0.58 0.58 0.59 0.59 0.59 0.59 0.59 0.59 0.59
Income and wealth
Real disposable personal income 1.5 -0.5 1.1 2.4 2.0 0.6 2.1 2.4 2.8 2.9 2.2
Net household wealth ($ trillions) 57 59 63 65 71 82 87 93 97 104 110
Personal saving rate (percent of disposable income) 5.0 6.1 5.6 5.7 5.6 4.4 4.3 4.5 5.3 6.0 5.9
After tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments -16.0 8.4 25.0 7.9 7.0 4.9 4.2 2.8 0.1 2.8 3.2
Housing
Housing starts (thousands) 900 554 586 612 783 909 1,112 1,435 1,678 1,751 1,757
Stock of owner occupied homes (millions) 130 131 132 132 132 133 134 135 136 137 139
Interest rate on 30-year fixed rate mortgages (percent) 6.04 5.04 4.69 4.46 3.66 3.95 4.30 4.53 4.80 4.91 4.98
Foreign trade
Current account balance, share of GDP (percent) -4.6 -2.6 -3.0 -2.9 -2.7 -2.3 -2.0 -1.7 -1.8 -2.0 -2.8
Merchandise trade balance ($ billions) -866 -547 -691 -786 -786 -722 -742 -753 -827 -899 -1,050
Relative unit labor costs (Index, 2008=100) 100.4 103.5 95.5 88.6 86.2 82.9 83.7 86.8 90.7 93.4 96.1
Financial
Federal funds rate (percent) 0.51 0.12 0.19 0.07 0.16 0.10 0.10 0.25 0.50 0.70 1.00
Yield on 30-year treasury bond (percent) 3.73 4.31 4.14 3.04 2.86 3.66 4.03 4.37 4.57 4.37 4.37
Government
Federal budget balance, unified basis ($ billions, fiscal years) -455 -1,416 -1,294 -1,297 -1,089 -680 -685 -663 -700 -748 -780
State and local budget balance ($ billions, NIPA basis) -165 -272 -237 -213 -253 -218 -160 -128 -122 -136 -149
Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Table 4. Deloitte US Forecast: Fast

Percent change, year-over-year unless otherwise noted.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP components
Real GDP -0.3 -2.8 2.5 1.9 2.8 1.6 2.8 4.1 4.9 4.5 4.5
Real consumer spending -0.4 -1.6 2.0 2.6 2.2 1.9 2.4 3.8 4.5 4.6 4.7
Real consumer spending, durable goods -5.1 -5.5 6.1 6.6 7.8 6.8 5.3 5.1 4.8 4.0 2.3
Real consumer spending, nondurable goods -1.1 -1.8 2.2 1.9 1.4 1.9 1.7 3.0 3.8 4.2 5.0
Real consumer spending, services 0.8 -0.8 1.2 2.1 1.6 1.1 2.2 3.9 4.7 4.8 5.0
Real investment in private housing -24.0 -21.2 -2.5 0.5 12.9 14.1 10.8 7.9 8.0 8.2 7.5
Real fixed business investment -0.7 -15.6 2.5 7.6 7.3 2.4 7.3 9.8 9.7 8.6 7.2
Real inventory accumulation -34 -148 58 34 58 65 73 84 93 89 86
Real exports of goods and services 5.7 -9.1 11.5 7.1 3.5 2.4 5.1 8.9 8.4 7.2 8.0
Real imports of goods and services -2.6 -13.7 12.8 4.9 2.2 1.5 4.7 9.4 8.2 8.7 8.3
Real government consumption and investment 2.8 3.2 0.1 -3.2 -1.0 -2.1 -0.2 1.1 2.4 2.5 2.5
Real federal government consumption and investment 6.8 5.7 4.4 -2.6 -1.4 -5.5 -2.2 0.3 0.8 1.4 1.5
Real state and local government consumption and investment 0.3 1.6 -2.7 -3.6 -0.7 -0.2 0.7 1.7 3.6 3.5 3.4
Prices
Consumer price index 3.8 -0.3 1.6 3.1 2.1 1.5 1.9 2.1 2.3 2.2 2.2
Chained price index for personal consumption expenditures 3.1 -0.1 1.7 2.4 1.9 1.2 1.9 1.9 2.1 2.0 2.0
Chained GDP price index 2.0 0.8 1.2 2.0 1.8 1.5 1.8 2.0 2.0 2.1 2.3
Employment cost index 3.0 1.7 1.9 2.0 1.9 1.9 2.1 3.8 5.3 5.3 5.4
CPI for energy products 13.7 -18.1 9.5 15.2 1.0 -0.4 2.3 3.7 3.9 2.6 2.4
Labor markets
Average monthly change in employment -232 -469 63 167 181 191 255 270 236 170 158
Unemployment rate 5.8 9.3 9.6 8.9 8.1 7.5 6.7 5.4 4.6 4.6 4.5
Employment-to-population ratio 0.62 0.59 0.58 0.58 0.59 0.59 0.59 0.60 0.61 0.61 0.61
Income and wealth
Real disposable personal income 1.5 -0.5 1.1 2.4 2.0 0.6 2.3 3.6 4.5 4.7 4.3
Net household wealth ($ trillions) 57 59 63 65 71 82 91 100 108 118 139
Personal saving rate (percent of disposable income) 5.0 6.1 5.6 5.7 5.6 4.4 4.4 4.2 4.3 4.5 4.2
After tax corporate profits with corporate profits with inventory valuation and capital consumption adjustments -16.0 8.4 25.0 7.9 7.0 4.9 7.1 6.8 8.2 7.0 9.2
Housing
Housing starts (thousands) 900 554 586 612 783 909 1,114 1,462 1,742 1,846 1,883
Stock of owner occupied homes (millions) 130 131 132 132 132 133 134 135 136 138 139
Interest rate on 30-year fixed rate mortgages (percent) 6.04 5.04 4.69 4.46 3.66 3.96 4.59 5.38 6.24 7.46 8.30
Foreign trade
Current account balance, share of GDP (percent) 0.51 0.12 0.19 0.07 0.16 0.11 0.50 1.50 3.50 5.00 5.00
Merchandise trade balance ($ billions) 3.73 4.31 4.14 3.04 2.86 3.70 4.83 5.37 5.97 7.47 7.67
Relative unit labor costs (Index, 2008=100) 100.4 103.5 95.5 88.6 86.2 82.8 81.5 80.0 78.2 76.4 74.4
Financial
Federal funds rate (percent) 0.51 0.12 0.19 0.07 0.16 0.11 0.50 1.50 3.50 5.00 5.00
Yield on 30-year treasury bond (percent) 3.73 4.31 4.14 3.04 2.86 3.70 4.83 5.37 5.97 7.47 7.67
Government
Federal budget balance, unified basis
($ billions, fiscal years)
-455 -1,416 -1,294 -1,297 -1,089 -680 -666 -613 -574 -621 -644
State and local budget balance ($ billions, NIPA basis) -165 -272 -237 -213 -253 -217 -158 -108 -80 -93 -112
Sources: Historical data: US government agencies and Oxford Economics. Forecast: Deloitte, using the Oxford Global Economic Model.

Endnotes

View all endnotes
  1. “Growth: External impediments,” NFIB National Small Business Poll, Volume 11, Issue 1, 2011.
  2. See “The underfunding of state and local pension plans,” Congressional Budget Office, May 2011.

About The Author

Dr. Daniel Bachman

Dr. Daniel Bachman is a senior manager for US macroeconomics at Deloitte Services LP.

Acknowledgements

Contributors

Dr. Ira Kalish is chief global economist for Deloitte Touche Tomatsu Limited.
Dr. Patricia Buckley is director of economic policy and analysis for Deloitte Services LP.
Dr. Rumki Majumdar is a macroeconomist and a manager at Deloitte Research, Deloitte Services LP.

US Economic Forecast, December 2013
Cover Image by Jon Krause