Despite the significant drop in stock index trading on Standard and Poor’s 500 stock on the first day of trading in 2014, financial experts claim that this is not a clear indication of the financial outlook for the new year. In fact, according to a report in the USAToday, there are many hopeful signs that the new year will be a good one. According to Mesirow Financial economist Diane Swonk, “2014 could be the breakout year,” she says. “This is the year when we’re going to find out.”
What are we looking for in 2014?
First, economic experts are watching the Federal Reserve to see if they will begin reducing the amount of bonds they are purchasing each month. If they do, many see this as an indication that the five year financial crisis may be over and recovery is clearly in sight.
What else do we need to see? For true financial improvements we need to see young adults move out from under mom and dad’s financial support, buy their own homes and cars, get married and start families. Not only do mom and dad need a break, Americans need the housing construction markets get a boost.
Financial improvements call for economic growth
Financial improvements can also only come if the economy grows at a substantial pace. For instance, experts claim we need the economy to grow “3% to 3.5%, generating 250,000 jobs a month and pushing unemployment to near 6% of the workforce.”
What if the economy does not grow fast enough? Experts warn that if we cannot see good growth that we may have to accept what they are calling the “new normal”- growth of only 2% to 2.5% annual growth and a 7% unemployment rate.
The one bright spot from last year was an uptick in spending and hiring in the fall. According to USAToday, “November data was better-than-expected across the board, with hiring and retail sales beating forecasts and unemployment dropping to 7.0% for the first time in five years.”
Another bright spot in 2013 was the housing market where, especially in the South, we saw significant financial improvements. Construction surged, homes were sold and more consumers decided to buy homes, forcing a significant rise in home prices. Critics point out, however, that consumer confidence remains low and wages stagnant. We need financial improvements in these two areas for more growth.
Financial improvements that are still needed?
So what do we need to see a full-blown recovery? While some indicators have been strong, there are some financial improvements which are still needed. For instance, State and Federal governments need to curtail their spending, and businesses need to make more capital investments. Other areas of concern include rising interest rates, which could stall the housing recovery, and stagnant wage growth, which in the long run could hurt home purchases and consumer spending.
The bottom line
While there have been significant financial improvements over the last few years, financial experts suggest growth and improvement are still needed to ensure the toughest years are behind us.
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