There is not going to be much of a change in the unemployment rate over the next six months. This assumption is supported by the last quarter’s 4.0% annualized GDP growth rate which was extraordinarily strong.
We’ve seen six straight months of 200,000+ jobs created in the economy and unemployment, which is currently at 6.2%, is likely to fall to 5.9% by the end of 2014. If the economy continues to grow at its current rate, the unemployment rate should then decline to 5.6% by the end of 2015.
Over the past three years, there were several factors potentially holding U.S economic growth back. Let’s take a look at where these major risks currently stand:
| No Longer a Risk | Somewhat of a Risk | Still a Risk |
| Home Prices – Housing prices are growing as home equity increases are feeding consumption. | Home Construction – New home construction is not nearly as strong as it needs to be. Should pick up though as housing prices spur building. | Poor Business Confidence – Companies are still sitting on record cash levels. Potentially, this is good for stock prices, but may signal a lack of investment opportunities. |
| Employment – Jobs numbers are strong. More jobs, more consumption. Look for small-cap retailers to do well. | Ongoing Reduction in Household Debt – Levels are not as bad as before, but not as good as they should be. | Tight Credit – With the exception of certain goods like autos, credit is not as loose as it needs to be for consumers to increase spending. |
| Budget Deficit Improvement – It’s down from $1.3 trillion in 2011 to $640 billion last year, and projected to fall below $600 billion this year. Lower budget deficit means greater long-term GDP growth with less debt overhang. | Europe – The problems in the Eurozone are still present but not as bad as they have been. Portugal, Italy, Greece & Spain (PIGs) are doing much better. | Middle-East and Oil Prices – As bombs begin to drop again in Iraq, oil prices are going to have to rise |
| Russian Tensions with the E.U. and U.S. – The market rallied Friday on the belief that Russia is de-escalating the Ukrainian crisis. |
What the table above basically shows is that the issues people thought could potentially start a recession seem not to be materializing. Three major risks have transitioned from the “still-a-risk” column to the “no-longer-a-risk” column.
What’s more, the following factors are helping fuel greater growth for the U.S.: Population growth, increased household formation, wealth accumulation, rising real incomes, invention & innovation, oil-sands boom, entrepreneurship, U.S. competitiveness, easing financial conditions, shrinking credit spreads and rising equity prices.