• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Investment Insights>Our Outlook for the Economy

Related Content

  1. Videos
  2. Articles
  1. Sharpen Your Portfolio Plan for 2014 and Beyond

    Roundtable Report: At the outset of 2014, Morningstar strategists dig into the market's current valuation and expected return, seek out high-quality U.S. and foreign stock opportunities, size up the role of cash today, assess the Fed's impact on the market, and reveal the best ways to fight inflation .

  2. Think Twice Before Ditching Bonds

    Although many fixed-income fund categories had a rocky 2013, investors should heed the dangers of swapping their bonds for cash or stocks, says Morningstar's Eric Jacobson.

  3. Getting a Read on Today's Economy

    Fed fixation, slow growth, dollar dilemmas, and overheated markets topped the list of key topics in our opening conference panel, featuring Morningstar's Bob Johnson, Susan Schmidt of Mesirow Financial, and Northern Trust's Carl Tannenbaum.

  4. Deciphering the Big Picture

    In Session 1 of the 2013 Morningstar Individual Investor Conference, Northern Trust's Katie Nixon, Charlie Bobrinskoy of Ariel, and Morningstar's Bob Johnson tackle today's macro questions on government policy, economic growth, inflation , and more.

Our Outlook for the Economy

GDP, employment, and consumption growth have all been stuck in a very narrow range--and are likely to remain so in 2014.

Robert Johnson, CFA, 12/27/2013

  • GDP growth in 2014 should continue at a 2.0%-2.5% rate, inflation at 1.5%-1.8%, and job growth at 190,000 per month.
  • The recovery continues at a snail's pace, with income and consumption growing at half their normal recovery rate due to slower population growth and an aging demographic.
  • The good news is real hourly wage data points to a stronger labor market.


Below is my economic forecast, which includes my estimates for 2013 and 2014, as well as data from 2011 and 2012 for comparison. The table is based on last-period to last-period growth rates, or the last period of data for single data points.

What is most striking to me about the table is that overall GDP growth rates, employment growth, and consumption have all been stuck in a very narrow range, centering on 2%, for the last three years. I expect much the same result in 2014. The U.S. economy appears very much like an ocean liner, finding it very difficult to change either speed or direction. My forecast is little changed from my last quarterly report, though this table now includes more data points.

I expect little change in the overall GDP growth rate in 2014, but the composition of that growth is likely to be somewhat different. Inventories should be a much smaller contributor to growth, net exports are likely to be a larger subtraction from GDP as imports grow, and government spending should be a much smaller negative next year. Consumption, housing, and business investments (excluding inventories) are likely to change little from their 2013 growth rates. I don't see a big boom or a bust.

Others are more bullish on overall GDP growth, but I suspect growth rates in autos will decelerate, existing home sales will likely be flat, and government spending will still be a drag, albeit smaller than the rather large subtraction in 2013. With little change in the 2% GDP growth rate, I suspect employment growth also won't change much in 2014.

Slow growth, a wide output gap (a fancy capacity utilization measure), and a bumper farm crop should all keep inflation in check in 2014, although medical costs may rise faster than in 2013, bringing up the overall rate of inflation. With the Fed officially tapering bond purchases, 10-year Treasury bond rates should move up to reflect the inflation rate plus a spread, now that the Fed is withdrawing its support.

Auto sales should continue to do well in 2014, with continued employment growth, new models, and an aging fleet. Unfortunately, auto sales are now approaching previous highs, and the law of large numbers is beginning to set in, with year-over-year growth rates likely to slow.

Robert Johnson, CFA, is director of economic analysis with Morningstar.

©2017 Morningstar Advisor. All right reserved.