Paul Buckley ’17 & Alex Gorgoni ’17
In a two part article, we will be discussing the economic outlook for 2015 and what to expect following the growth that 2014 brought.
2014 was a year of economic prosperity in the United States. The year ended with positive energy that is perpetuating into 2015. Overall, estimates and consensus point towards the continuing uptrend in economic strength.
For investors, 2014 brought new found confidence in the markets as the Dow Jones Industrial Average, S&P 500, and NASDAQ indices saw year over year increases of 2492, 226, and 583 points respectively. Even with turmoil in the Middle East and the Ukraine, an oil glut which struck down the price of oil over 50% since August, and economic uncertainty in Europe, investors enjoyed record highs in the market, as both the DJIA and S&P 500 recorded record closing prices multiple times as the year ended. It’s safe to say the economy of not just the US, but also the global economy has recovered exponentially since the Mortgage Crisis and Credit Crisis that ravaged markets 8 years ago and led to the Great Recession. While many analysts look at the above average returns of 2014 and use the “what goes up, must come down” idiom to describe the current bullish market, Forbes contributor Bill Greiner disagrees with the notion of a future bear market, and expects stock market prices to continue to rise in the foreseeable future. “I believe the fundamental forces which have led to higher stock prices each year since 2008 will once again lead to positive returns for the U.S. stock market in 2015” says Greiner; however, with a combination of higher-than-normal valuation levels and a potential change in monetary stimulus from the Fed, we could see varying levels of price volatility.
In 2014, 3 million new jobs were added into the labor force (which was the largest increase since 1999). The large assortment of job creating is expected to continue into 2015, which in turn, will lead to strong consumer spending. Job creation compounded with plummeting oil prices, are two positive signs that consumer spending will be strong in 2015. As sales rise in businesses, the pressure to hire more employees becomes a factor. Not only will more employees be hired, but, more money will be reinvested into the businesses in order to parallel the rising sales.
Bernard Baumohl, chief global economist of the Economic Outlook Group, is even more optimistic about 2015. “The next two years could be the best two we have seen in at least a decade,” he said “There is clearly a lot of evidence the economy is gaining a lot of momentum.” Looking at the big picture, the economy has the chance to grow over 3% for the first time in over a decade. The only threat to the growth assumption would be the hike in interest rates posed by the Fed, which is unlikely in the year 2015.
In the next article we will be discussing the labor market, consumer spending, and myriad of other factors affecting economic growth as we go forward in 2015.