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Economic Outlook for 2014 Depends on Who You Listen To

Posted By Bob Ogle, Thursday, December 19, 2013

Care to guess how the U.S. economy will perform next year? Join the club.

Wells Fargo calls for sustained subpar growth and low inflation, with continued caution by businesses and consumers. Interest rates will remain low and the U.S. housing market will continue its recovery, transitioning away from investment and speculation to traditional fundamental drivers.

But wait: Kiplinger is looking for increased business and consumer confidence as a driver of economic growth, while admitting that growth will continue to be below the long-run potential, even five years into the recovery. The publication also sees Congress as a potential fly in the ointment with numerous opportunities for gridlock and conflict. There is agreement about sustained low short-term interest rates, with more volatility in longer-term rates, which are expected to rise modestly.

If you’re looking for rose-colored glasses, they’re at Bank of America. While acknowledging a volatile environment, BofA/Merrill Lynch is predicting strong U.S.-led economic growth on the global stage, with a huge amount of "inherent upside risk” in a vigorous bull market for the U.S. dollar and interest rates that will slowly rise during the year.

There’s also a wide range of opinions about the outlook for U.S. stock prices in 2014. Bears include Nobel laureate Robert Shiller, and he’s not alone. Schiller is worried that stocks are headed toward bubble territory, driven higher by Fed stimulus and by speculators, and that the time to buy was yesterday. Shiller won his Nobel this year in forecasting asset prices, so that might add a bit more weight to his forecast of a bursting bubble.

Henry Smith, chief investment officer at Haverford Trust, begs to differ and continues to ride the bull. Kiplinger quotes Smith: "We don't see a bear market coming. We believe that March 2009 represented a generational low, and that this is the middle of a sustained bull market."

The forecasts are dizzying and often divergent, but common threads seem to run through all of them: Interest rates are likely to remain low, hiring is likely to remain tepid, GDP growth will be underwhelming, and getting agreement on the stock market is like trying to herd cats. There is also likely to be a great deal of variation depending on region.

Looking for a bottom line? Be careful whose crystal ball you use, trust your eyes and ears with anecdotal evidence in your region, and be ready to duck and cover – just in case.

Tags:  business  economy  recession 

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