Morgan Stanley sees the U.S. economy accelerating nicely in 2014 and 2015.
“We expect 2013 real GDP to expand just 1.6%Y this year, shifting to a sustained pickup in growth to 2.6%Y in 2014 and 2.7%Y in 2015,” wrote Morgan Stanley’s Vincent Reinhart. “The government shutdown is a transitory drag that has delayed an inflection point in the recovery by one quarter. Final demand is strengthening as we move toward the New Year and the pieces remain in place for growth to shift into higher gear.”
“Four fundamentals build the foundation for this performance,” said Reinhart. In his words:
The financial crisis of 2007-08 took an enormous toll on the level of economic activity. With this adjustment mostly having run its course, the drag on growth has lifted. Similarly, fiscal consolidation at the federal level will continue as background noise, but at nowhere near the volume of the tax increases and sequester-driven swoon of the first half of the year. Meanwhile, considerable wealth has accumulated, driven by the run-up in major equity indexes and gain in home prices. In the Federal Reserve’s Financial Accounts, net worth as a per cent of disposable income is poised to soar further in 2013. Adding this fuel to sales, firms should feel a need to increase capital spending. Supportive of this spur, businesses have been underinvesting for some time and have ample cash on hand, implying a reason and an ability to invest.
Reinhart’s team also expects the unemployment rate to fall to ” 6-1/2 per cent on the cusp of Q4 2014 and 6.0 per cent by mid-2015.”
Earlier today, Citi’s economics similarly predicted that the U.S. economy would grow at a 2.7% pace in 2014, but with an unemployment rate averaging 6.8%.