Is this the year the US economy finally takes off?
Despite a slow start in 2014, many economists say, “Yes.” Of course, they’ve said that before, in 2011, 2012, and 2013, but this time, they say, is different.
Consumers are spending, home prices are rising, and stock markets are soaring, while the federal tax hikes, spending cuts, and government shutdowns that weighed on the economy last year are in the past. Job growth, if unspectacular, has been solid.
“All signs point to this as finally the time the economy is about to accelerate,” said Bill Cheney, chief economist at John Hancock Financial Services. “The strength we started to see in the second half of last year, and we are seeing now, is for real.”
The latest sign came Friday, when the Labor Department reported that US employers boosted payrolls by 192,000 jobs in March, after adding 197,000 jobs in February. More people entered the labor force, and more found employment in March; the jobless rate held steady at 6.7 percent.
In Massachusetts, analysts are expecting the state economy to advance at a strong pace in 2014, following the best year in job growth since the dot-com boom of more than a decade ago. The state added about 55,000 jobs in 2013.
Among the factors expected to contribute to a strong 2014 here is an improving European economy, said Alan Clayton-Matthews, an economics professor at Northeastern University. Europe, which slipped back into recession last year, is Massachusetts’ largest foreign market, accounting for more than one-third of the state’s exports last year.
“The cards are looking more favorably for a robust expansion this year,” Clayton-Matthews said.
Since the recession ended nearly five years ago, the US economy has experienced a painfully slow recovery.
At certain points in the recovery, it appeared the economy was about to take off, only to be held back by events such as the debt crisis in Europe and political brinkmanship in Washington.
The economy is off to a slower start in the first three months of 2014 than in previous years, but many economists view it as temporary, mainly the result of a harsh winter. Employers continue to steadily hire and consumers are spending.
Consumer spending drives the US economy, and it has increased in each of the past two months, according to the Commerce Department. Rising stock markets and home values, which add to household wealth, are supporting consumer spending.
The Standard & Poor’s 500 Index hit a new record last week, closing Wednesday at 1,890.90. Home prices nationally have risen 13.4 percent over the past year, according to Standard & Poor’s/Case Shiller Home Price Index, a widely followed measure of the housing market.
“Consumer spending is 70 percent of the economy, and it has been growing at a moderate and sustainable pace,” said Doug Handler, chief economist at IHS Global Insight, a Lexington economic forecasting firm.
Manufacturing activity has also picked up; in February, it experienced the largest rise since September, according to the Commerce Department. A closely watched survey by the Institute for Supply Management found that manufacturing expanded in February.
Mark Zandi, chief economist at Moody’s Analytics, a forecasting firm in West Chester, Pa., said the economy withstood successive blows in 2013, including the end of Bush-era tax cuts, tax increases to pay for the Affordable Care Act, the automatic federal budget cuts known as sequestration, and the government shutdown in the fall.
“It was the most fiscal drag since World War II, and despite that the economy still grew 2.6 percent,” Zandi said. “This year, the economy will grow much more strongly because there will be much less drag.”
Zandi is also encouraged that corporate profit margins are wide, businesses are reducing their debt, homeowners are locking in low interest rates, and banks have large amounts of capital, which typically leads to more lending.
“The only missing ingredient is confidence, where businesses take a risk – introducing a new product, expending their footprint, hiring, and investing,” Zandi said. “But all of the preconditions are in place.”
Economists say the recovery still faces risks, such as the crisis in Crimea and Ukraine, which, if it blows up, could toss the global economy into turmoil. The housing sector, while improved, remains soft in most of the country, said Handler, of IHS Global Insight. He said he would also like to see more jobs created in construction — one of the hardest hit sectors in the last recession.
Businesses remain cautious. Associated Industries of Massachusetts, the state’s largest employers group, says its business confidence index shows Massachusetts companies still unconvinced about the strength of the economy. Small businesses cited worries about the Affordable Care Act and federal government gridlock.
“This is not what you’d hope for in the fourth or fifth year of a recovery,” said executive vice president Christopher Geehern.
Economists add the recovery has been uneven, with wages for lower- and middle-income families barely growing, if at all. Long-term unemployment remains at historically high levels, with 3.7 million Americans out of work for more than six months in March, according to the Labor Department.
On average, economic conditions are getting better, said Northeastern’s Clayton-Matthews. But, he said, “The economy for everyone is not improving.”Edward Mason can be
reached at Edward@EdwardMason.net. Find on him on Twitter @EBMason.