The U.S. economy has been showing signs of acceleration as we get 2014 rolling. The Senate approved a spending bill topping $1 trillion that should keep the wheels on the Capitol turning through September.
- Goldman Sach’s economists forecasting 2014 GDP growth of 3.3 percent
- 3Q GDP growth revised up to 4.1 percent
- 2013 was the best car and truck sales year since 2007 with 15.6 million vehicles sold, a 7.5 percent increase over 2012
- Projections of 20 percent decline in oil prices as lower global demand can’t keep pace with the U.S. shale oil boom
Capital markets had surprisingly little reaction to the “taper-lite” program proposed by the Fed, which cuts spending from $85 billion to $75 billion. This will likely cause upward pressure on interest rates, creating a bumpy road ahead for stocks and bonds.
- Dow Industrials up 27 percent
- Nasdaq up 38 percent
- S&P reported 10 sectors up 32.4 percent
- 10-year Treasury rates up nearly 100 basis points
- Bonds fell globally 0.4 percent
- $85 trillion in debt and $62 trillion of equities at year-end
Despite the positive signs, uncertainty in China and emerging markets is threatening to derail growth in both the U.S. and abroad. The Chinese government has announced plans to make the country’s economy more market driven, consumer driven, transparent and prone to profitable investing. The challenge is implementing these ambitious plans and stabilizing the unbalanced system currently in place.
- China’s current economic growth is relatively slow compared to the past
- Most factors driving the growth are from imbalances, like fixed asset investment, further increasing the chances of problems in the future
- The planned program proposes a mixed bag of reforms, such as increasing the competition for state-owned enterprises yet failing to propose privatization of those enterprises
- Short-term liquidity squeeze eases as seven-day borrowing rate drops to 4.89 percent from 8.94 percent
- China’s Yuan has eclipsed the Euro and the Yen as a trade currency
For an in-depth look at the global economy, read the Global Economic Outlook, Q1 2014 by Deloitte University Press. For a bite-sized report on the U.S. economy, capital markets and commercial real estate, read the February edition of the BRIEFING, compiled by Transwestern.