Could significant economic growth finally be underway in the U.S.? The December revision of the 3rd quarter GDP seems to suggest that it is.
The GDP was revised upward to 5%, achieving the highest pace of quarterly growth since the 6.9% growth rate in the 3rd quarter of 2003. The improvement was mostly attributed to increases in business investments and personal consumption, suggesting potential momentum for continued growth.
Many economists agree, raising their estimates for 4th quarter growth to the 2.5%-3.0% range. Economic growth for 2015 is currently projected to be in the 3% range or slightly higher.
Let’s assume (and hope) that this trend continues throughout 2015. What does that mean for most Americans, and is it all positive?
- Jobs – A stronger economy should add jobs at an increased rate from the approximately 240,000 jobs per month in 2014. If the predicted 3% annual growth comes to pass in 2015, that should translate to around 300,000 to 340,000 jobs created per month.
- Wages – The U.S. still has significant unemployment and underemployment to absorb in 2015, but eventually job growth will take up enough economic slack for upward pressures on wages to kick in. Upper wage earners should see the first benefits, but pending minimum wage legislation in some areas may assist lower wage earners.
- Inflation – The downside of rapid growth is inflation, but the Federal Reserve actively monitors inflation and stabilizes prices with the tools it has available (interest rates and altering the money supply).
The Fed is expected to raise interest rates in 2015. If you intend to enter the housing market, you should lock in a rate soon before interest rates return to a higher level.
- Investments – Economic growth should keep the stock market rolling, with occasional interest rate adjustments and other events tempering the growth rate. Overall, equity investments should prosper in a strong economy.
- The Dollar – Strong economic growth relative to the rest of the world is causing the dollar to rise. At the corporate level, a dollar that is too strong combined with weak international growth may make the U.S. growth self-limiting unless domestic spending can compensate.
For consumers, that is good news, since imported items will be more competitive and provide some downward price pressures.
- Taxes – Stronger growth means a rise in tax revenues. We hope that that means deficit and/or debt reduction, but it could also allow for greater government spending.
We still do not know the true effect of ObamaCare on the economy, or how health care subsidies and potential Medicaid expansion will draw off funds – and having Republicans in control of Congress does not necessarily mean less spending.
Even so, the combination of economic growth and relatively low interest rates make this an excellent time for Congress to devote some increased tax revenue toward infrastructure repair. With any luck, you will see more road and bridge repairs, and more work opportunities if you are in construction.
- Debt – Increased wages provide an opportunity to cut down on personal debt. Address high-interest credit card debt, pay off your car, or make extra payments on your mortgage. Resist the temptation to increase spending to match your new income.
Economic growth is certainly good for America, but all it does is provide opportunities. It is up to Americans at all levels, from corporate leaders and politicians to us average citizens, to make responsible choices that keep momentum for positive growth and avoid squandering our good fortune.
In short, save responsibly and spend wisely. Strong economic growth does not last forever.