In a repeat, but more resonant, economic outlook, PNC Senior Economist Augustine Faucher predicts for 2015 much of what he did for 2014: optimism.
“I’m feeling pretty upbeat about this year as well,” he told about 50 members of the Association for Corporate Growth’s Northeast Florida chapter.
Last year, Faucher’s cheery economic forecast to the group was unusual in that few economists were spreading such rosy news and few audiences seemed to agree with so many signs of optimism.
This year, Faucher’s forecast resonated because more economists have been saying much of the same.
He predicts that by the end of 2015 and into 2016, consumers will acknowledge “this is what a good economy feels like.”
Faucher, a vice president for The PNC Financial Services Group in Pittsburgh, said the “end of the great deleveraging” since the Great Recession ended in 2009 is leading to economic growth because there is more money to spend.
Deleveraging is the pay-down of debt. Consumers and businesses that paid off debt accumulated throughout the recession now have money to invest elsewhere.
Gross domestic product has been rising and Faucher predicts annualized quarterly growth between 2.2 and 3.5 percent through the end of 2016.
Businesses are finding the strong productivity expected of a pared-down workforce during the recession isn’t enough to meet the increased demand for their goods and services. They need more employees, and likely will have to improve wages to recruit new workers.
Employers also face pressure to pay more to retain workers. The “quit rate” is rising, which means some employees have the confidence to leave their jobs for other opportunities. That means their bosses might have to bump up salaries to keep good staff.
“Wage growth will accelerate,” Faucher said.
Another factor that frees spending money is the decline in fuel prices. When a consumer is spending $15 less each time he or she fills the tank, more money is available to eat out at restaurants or for other purchases. That means a lot for Florida’s economy, which relies heavily on tourism.
Consumers also have cut back on their mortgage debt, either by refinancing or walking away from underwater mortgages.
Meanwhile, auto sales nationally are back up to 16-17 million a year after seven or eight years of sales well below the long-term trend. Faucher says the average age of a car on the road is 11.4 years.
Among some of Faucher’s other insights:
• Housing starts are back up to 1 million a year and he thinks the long-term trend is 1.25 million a year. That’s less than the 2 million starts a year in 2005 and 2006, just before the recession. “We will see continued gradual improvement in the housing market,” he said.
• Housing prices are up 5-6 percent from a year ago, but they are down 10 percent from their peak. Also, 15 percent of sales are of distressed properties. Faucher said there’s still a foreclosure overhang in Florida.
• The economy has regained the 9 million jobs lost during the recession and will add about 250,000 jobs a month through the year. He said businesses are paying just 1 percent more in wages than they did six years ago but have raised prices an average of 8 percent. “We will see continued strong job growth in 2015,” he said.
• Unemployment has dropped to 5.5 percent and will continue to fall, but there still is slack in the labor market as underemployed people look for jobs that better suit their skills or needs.
• Global risks and “headwinds” remain that need to be watched for their impact on the economy, including trade, energy, economies and conflicts.
• Mortgage rates rose but have come back down. The Federal Reserve Board indicated Wednesday it would consider raising short-term interest rates in June, but that doesn’t mean it will. Faucher said rates will rise, “but it will be a very, very gradual process.”
Faucher was asked two repeat questions Wednesday that he received last year: The impact of the Affordable Care Act and what worries him about the economy.
His answers were similar, too.
As for the Affordable Care Act, he said it will take several years for the full impact to be determined. “We’re still trying to figure it out,” he said.
The act was signed into law five years ago. When it was enacted, “I thought the impact on growth will be neutral. I still think that’s true,” he said.
It allows people to access health insurance without relying on an employer. That portability means people can start businesses and change jobs without fear of losing access to health insurance, he said.
“It certainly has not proven to be a job killer,” he said.
Asked what would worry him about the economy, he referred to his list of global risks and headwinds. “Domestically, the fundamentals are very solid,” he said. His concern is what happens internationally.
Faucher also was asked about U.S. government debt. Faucher referred to the loss of 9 million jobs during the Great Recession.
“In that case, it makes sense for the government to step in and fill the breach,” he said.
“This was the worst economic downturn in our lifetime,” he said.
One additional issue that he said hasn’t been addressed is the retirement of the 77 million baby boomers born from 1946-64.
The first turned the traditional retirement age of 65 in 2011. By 2030, all will have reached that age.
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