2014 Economic Forecast

I recently attended the Financial Planning Association quarterly meeting and Dr. Esmael Adibi, Director of Economic Research for Chapman University, presented Chapman’s annual forecast. Dr. Adibi has been a regular consultant to California’s governors over the years; although he is quick to point out that they never take his advice regarding needed changes!

Some of the key statistics that he shared were:

• Although the U.S. Gross Domestic Product (GDP) is up 6.5% since 4Q of 2007, payroll is down (0.7%). While the economy has slowly grown, jobs have not.
• U.S. unemployment has decreased to 6.6% from a high of 10%. However…
  • Participation rate (those seeking employment) has dropped to 63% from 66%. This 3% decline equates to 6.3M people no longer looking for jobs. Of the 6.3M, 1.5M were due to disability issues, thus leaving $4.8M who stopped seeking.
  • California’s unemployment rate at the end of 2013 was 8.3%
• Their forecast for U.S. 2014 GDP is 2.8%, which would indicate continued slow growth.
• Their 2014 year-end forecast for 30 year fixed mortgage rates increases to 5%.
• After the Federal Reserve ends Quantitative Easing, which is schedule to stop near the end of 2014 at the current pace of tapering, there is still $4T of money that has been printed and sitting in banks. Up to this point, the banks have not lent this money which is a primary reason why inflation has remained in check. However, if banks decided to lend this money, then we could see higher inflation.
• Although home prices experienced a significant increase in 2013, they don’t believe we are in another housing bubble….yet. However, if prices increase more than 10% in 2014, then they believe we would be nearing another housing bubble.

What does this mean? The economy continues to grow slowly, but could be doing better. Let’s remember two things. First, the economy is never a smooth ride. There are periods of growth and decline, some periods experiencing changes larger than others. Next, we can only control our actions. I continue to urge you to focus on preparing a solid foundation to withstand negative changes in the economy, investments and unexpected events. A few ways to do this is by identifying and prioritizing your goals; knowing where and how much you spend (budget); and saving so you don’t become dependent on others nor are forced to make decisions you normally wouldn’t.

Please call me to discuss any financial issues. Additionally, please forward this email to anybody that would enjoy reading it or might benefit by speaking with me about their financial questions or goals.