Friday, June 6, 2014

Bank Economists See Solid Economic Growth Ahead

Growth resumed in the second quarter of 2014 after a surprisingly weak start to the year, but investment in businesses and homes – along with reduced fiscal drag – will spur the U.S. economy over the next two years, according to the Economic Advisory Committee of the American Bankers Association.

The committee, which includes 14 chief economists from among the largest banks in North America, predicts that inflation-adjusted GDP will achieve roughly 3 percent growth for the remainder of 2014 and into next year.

“The unusually cold winter, along with temporary drags from an inventory correction and weaker trade, slowed economic activity in the first quarter,” said Christopher Low, chairman of the group and chief economist of First Horizon National Corp's FTN Financial. “As these temporary factors fade, the underlying health of the economy will show through, with business spending and hiring leading the charge.”

The committee expects moderate consumer spending growth until wage growth accelerates.

"Households are benefiting from a material rise in home and equity prices, but remain constrained by weak wage growth,” said Low. “A more meaningful pickup in consumption will be elusive without stronger wage growth.”

The bank economists believe home prices nationwide will rise solidly and residential investment will increase 10 percent for the remainder of the year. Improving labor market activity will foster stronger household formation, supporting the housing recovery. “We foresee enough growth in jobs and income to keep housing strong even as mortgage rates rise,” Low said. “As home prices rise, we may begin to see an increasing wealth effect contribution to consumer spending.”

Read the full press release. Read the detailed EAC forecast numbers.

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