NFIB’s chief economist, Bill Dunkelberg, gives his predictions for next year.
2015 is just around the corner, launching the final
two years of Pres. Barack Obama’s term. What
should we expect next year in terms of politics
and the economy? Here’s what I see happening.
1. A lot of legislation will be approved, especially with the
Republicans gaining control of the Senate and retaining control of the House. But, with rare exceptions, Obama will veto most bills.
2. Health insurance cost increases will accelerate as
Obamacare rolls out.
3. Gross domestic product will grow slightly next year. Job
growth will lag GDP growth because of the outsized contribution of manufacturing and exports. Because of productivity, output can increase faster than jobs in manufacturing.
4. Inflation will remain tame. The world’s capacity to
produce goods has increased relative to the demand for them,
so price gains will be minimal. Western Europe, one of our
largest trading partners, is slowing in production and population, which is a bad combination for the United States.
While Canada and Mexico are in decent shape, a lot of that
trade is in vehicles. Vehicle sales will be as good next year as
this year since the average age of cars on the road is historically very high. Domestically, consumer spending will not be particularly strong. So, no price pressures, even if growth
manages to surprise on the plus side.
5. Interest rates will rise marginally. There’s a lot of saving globally, and those dollars are looking for a place to earn
a decent return. There’s also a lot of uncertainty, and when
large economies and geographic regions deteriorate, the
money runs to U.S. markets, supporting stock and bond
prices here relative to other markets. This will keep a down-
ward pressure on interest rates.
6. The Federal Reserve has said it’s more worried about
unemployment than inflation and that “significant accommodation” to try to lower the unemployment rate would be
appropriate indefinitely. Although the Fed will end its bond-buying program (QE3), it will continue buying bonds since
it does so in the normal course of conducting monetary policy, as determined by the Federal Open Market Committee.
7. Taxes will rise. Most of these taxes will be hidden in
legislation, as was the case in the healthcare law. The regulatory tax burden will rise as the administration tries to reshape
the economy via executive order or federal agencies.
8. Millennials will continue avoiding credit use and home
purchases. Many have too much education debt to become
homeowners. This will continue to create problems for the
residential construction industry.
Overall, government’s reach into the private sector will
continue to impede business growth. Virtually every economic recovery since 1958 has delivered lower rates of
growth, while government’s intrusion has grown. This must
be reversed if we hope to restore vitality in our economy.
Dr. Bill Dunkelberg, a nationally known authority on small business and entrepreneurship,
has served as NFIB’s chief economist since 1971. Watch his video series Your Bottom Line to find out more about the economy affects small business.