Experts Predict Economic Expansion for 2015 and 2016

Experts predict a few more strong laps around this race track we call our economy. Fifty forecasting experts with the National Association of Business Economics (NABE) believe the U.S. economy will grow at a rapid pace over the next two years. They suspect Gross Domestic Product (GDP) will increase on average 3.1% in 2015 and 2.9% in 2016.  

Few can complain about the potential win-win situation brewing that will reward businesses with higher sales and better employment opportunities for job seekers. Experts believe the economy will improve to a point where unemployment dips under 5% by the end of 2016.

The advantages of polling experts can help gauge the overall likelihood of success for the nation. These economic gurus have become successful in their fields and have opinions on economic growth and development. Funneling their opinions into useful metrics helps see that the average opinion is positive.

Each expert sifts the questionnaire information through their personal experiences, judgments and opinions to come to a conclusion about each question. These conclusions are averaged to get the statistics seen above. The more people involved in the forecast the greater the validity of the results.

Positive news and accurate information often draws investment from interested stakeholders that desire to improve their profit margins.  For example, if you own a business that is likely to benefit from a growing economy and are holding onto cash the positive news may prompt additional investment. This can in turn generate more employment; 250,000 per month worth.

Growing economies, lower unemployment, higher investment, and sustainable spending are positive news for any government that seeks to place in the finals of racing nations.  That doesn’t mean any of this will come to pass but that industry experts believe it is possible and perhaps even likely. If you are a business investor or a person seeking to gain from employment opportunities these numbers should be refreshing.

http://nabe.com/NABE_Outlook_March_2015

Why are American’s Quitting Their Jobs?

According to a report by the Bureau of Labor Statistics 57.5% of people who left their jobs did so under their own free will. A total of 5.03 million employees were added which boosted the hiring rate to 3.6%. At the same time 2.75 million people resigned in September with a quit rate of 2%. Make no mistake, the job market is heating up and employees are finding options that were not available to them a few years ago.

When the economy is poor and employment prospects are low employees naturally stay in their jobs for fear that they will not be successful in securing new employment. Likewise, there may be an abundance of people seeking the same position which raises the stakes when attempting to jump ship. It is often wiser to stay where you are at until things get better.

At present the amount of people seeking the same position are 2 to 1. Those are pretty good odds for people who want to beat out the competition. When those odds are 3 or 4 to 1 that makes uncertainty higher. When unemployment declines and businesses start hiring it sucks some of the slack out of the workforce creating advantages for job seekers.

Consider the low unemployment rate of 5.8% there is growing competition among companies to retain top talent. In any recovering economy usually college educated and highly technical jobs are the first to come back. These are the positions employers need to fuel their growth and development.

The people who have fewer opportunities are those in traditional middle class jobs such as manufacturing. Without a reemergence of manufacturing within the country it can be difficult for a person with moderate education and an industry based skill set to obtain better employment unless the entire industry comes back.

Job hopping is one sign of an improving economy. This means there is some flexibility within the market and realignment going on. During the recession realignment is painfully based on lay-offs but in good times realignment is more voluntary based on the opportunities of workers that want to better their position. Work environment, compensation, culture, promotion, etc… all play a factor in a person’s decision to stay or move.

http://www.bls.gov/news.release/jolts.nr0.htm

Unemployment Lowers and Opportunity Rises-At least for Some

October was a great month for the unemployment rate. According to government data, 214,000 jobs were added last month and unemployment moved down to 5.8%. This is great news for those who are actively seeking employment and are counted in the rankings. Those in the lowest wage rungs haven’t seen much improvement in wages. 

As unemployment numbers decline it naturally soaks up the slack in the labor market. Higher skilled workers usually get the cream puff jobs while lower skilled workers will still be picking up crumbs. Typically higher skilled workers find employment faster because they are needed in penetrating growth sectors of society that rely heavily on education and specialized skills. 

Lower wage service jobs and part-timers will be stuck in lower wages until slack in the market is tighten to create demand-not so easy in a global world. Some lower wage workers may find new training opportunities that help them move into higher paying employment but others may simply stay in lower wage positions unless they actively seek to improve their own skills. 

Eventually wages will rise on all levels of society but inflation may eat up a higher percentage of its purchasing power. For example, people are paid more today than they were 30 years ago but their individual purchasing power has declined. It simply takes more money to live a middle class lifestyle in American today than it did in the past.

What mitigates this relationship is the cost of doing business and the productivity of the American worker. When infrastructure is strong, positive growth policies are enacted, cost of information transference is low, productivity rises, education is reasonably priced then the overall costs of business will be lower. Improving on productivity and lowering the systematic costs in society helps create new employment opportunities.  

Feds Announce the End to the Era of Quantitative Easing

The Federal Reserve announced a discontinuing of the controversial bond buying program at the end of October this year. They will keep the short-term rates around 0 for the near future.  To this point, the risk to inflation is relatively low and the economy has shown mixed signals of strength in the last year or so. The Federal Reserve seeks to support the  3% projected national growth rate while not undercutting gains in the employment market. 

Lower Unemployment and Skepticism: 

Unemployment dropped to 5.9% but wages have not risen to provide an income boost. Most Americans are still skeptical of the economy and feel that improvements will occur sometime next year. They are not sure when next year but “sometime” seems to be the target spot. It is skepticism that is a result of not seeing high paying jobs and wage increases.

Bond Purchases: 

The bond purchases were controversial from the beginning but were seen as one avenue of encouraging development out of the world’s longest recession. Since 2008, the Fed’s investment holdings are around $4.5 trillion making them unprecedented in history. As the amount rises, so does the cost of debt, at a time where budgets are anything but balanced. 

The whole purpose of quantitative easing was to reduce interest rates to spur borrowing and improve economic activity (Newman, 2013). Theoretically, as interest rates decline businesses find it cheaper to expand operations and build more factories and businesses. It ignores the high rates of cash many of these businesses are sitting upon. 

As debt increases so does its overall costs. It becomes counter-intuitive to hold so much debt without reasonable assurance when and how it will be paid back. Long-term liabilities in business and government can be risky if the situation changes, another recession occurs, or the costs of servicing that debt rise unexpectedly. The Fed has ended an era of Keynesian induced development. 

Low Interest Rates: 

Keeping the interest rates low at a time when inflation risks are low is beneficial. Low interest rates can be a spark for development and investment (Dunlap, 2013). That development can be in the form of business growth, housing, or spending. As money stays cheap people will naturally spend more because it is easier for them to borrow than to save. 

Economic Optimism:

One factor that is not discussed in all the high finance terminology is optimism. American businesses must feel as though their future prospects will be lucrative. Investors want to feel that by borrowing and spending today they will reap significant rewards tomorrow.  Their analysis and decision-making leads to the conclusion that the economy will continue to get better and expand leaving them ample room for profit. If they perceive the economy will not get much better it makes more sense to purchase less risky investments or hold their money in the bank until brighter days are again apparent. 

Newman, R. (2013). A boost from the Fed. U.S. News Digital Weekly, 5 (10). 

Dunlap, N. (2013). Interest rates, the economy, and the market marionette. Journal of Property Management, 78 (6).