Economist Bill Witte, senior consultant with forecasting firm FTR, regards his baseline 2015 forecast as signaling “another step up” for the U.S. economy— measured in terms of GDP growth that he projects will rise from a current level of above 3.0% to “just under 3.5%” for the year.
During the latest in FTR’s monthly State of Freight webinar series, presented yesterday, Witte laid out both how the national economy got to where it is now and why it will most likely continue to grow through 2015.
He explained that the economic outlook for 2015 is optimistic in part due to output growth that rose by 3.4 % in Q4 of 2014 attributed to “accelerated” by gains in three out of four key sectors.
Witte explained that the positive effects of consumption that’s rose by 0.25%, business investment that climbed by 0.33% and government spending that mounted by 0.39% were only by a 0.15% decrease in housing growth.
“So,” he remarked, “going into 2015, three out of four cylinders are firing pretty good with one sputtering at best.”
Witte said that the economy will notch that added “step up” this year thanks to output growth that he forecasts will increase by 3.7% in the first half and 3.2% in the second half of 2015.
Also contributing to GDP growth this year will be employment changes reaching over 265,000 in the first half and 260,000 in the second half. He added that unemployment will stand at 5.2% at the end of 2015.
On the other hand, looking further out, Witte advised that his forecasting model “shows there will be a deceleration of the economy as 2015 heads into 2016” reflected by output growth forecast to be 2.8%, an employment change of 205,000 and an unemployment rate of 5.0%.
“The acceleration in GDP growth for 2015 will be due to consumption rising by 0.41%; government spending by 0.16% and housing by 0.20%,” Witte said. “Growth will be offset by a decline of 2.1% in business investment.”
He also pointed out that the “acceleration in 2015 will be driven mainly by services, not goods. Goods production is forecast to be up 0.08% and services up 0.28%.
“That does have implications for freight,” he continued. “Still, this year, goods will be contributing at about the same level as in 2014. So, expect to see a positive but not a drastic change in freight levels this year.”
Witte cited three downside risks for 2015 growth:
- The expected slowing of economic growth in Europe, China and in oil-producing nations “will put downward pressure on U.S. exports to major trading partners”
- Growth in housing starts may not pan out as positively as projected
- Lower oil prices putting the domestic energy sector under pressure could push down business investment for equipment
However, he said two downside risks may work out to be “potential upsides”:
- “Lower energy prices will have a positive effect on consumption globally and on the U.S. trade balance “
- The impact of a slowdown in domestic energy production on business investment “may be overestimated”
Looking back, Witte described the nation’s recovery “so far” from the economic devastation of the Great Recession as having come in two stages running from 2009 into 2014.
During the first stage, from mid-2009 to mid-2013, Witte said the economy worked its way back up to “a new normal,” in which output growth rose by 2.1%, employment change increased by 130,000 plus and unemployment fell.
“Then, from the second half of 2013 through Q3 of 2014,” Witte related, “the economy got to ‘a step above the new normal.” During that stage, he said that output growth rose 3.1%, employment change increased by 210,000 plus and unemployment fell further.