10 Critical Forecasts for 2014

Economic Forecasts

10 Critical Forecasts for 2014

Happy New Year! Prosper in 2014 with the help of The Kiplinger Letter’s exclusive forecasts on key political and economic issues.


1. Expect moderate growth for the U.S. economy. Consumers and businesses will spend more, and the unemployment rate will fall to about 6.5%. For the year, look for GDP growth of 2.6%, following a tepid 1.8% increase for the U.S. in 2013. Europe will grow as well, but only barely. Look for growth of less than 1% for the euro zone—not great but welcome news for a budding recovery. Germany and the United Kingdom will see stronger expansion.

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2. You’ll pay a higher rate for a mortgage—as much as 5.5% by next December, from around 4.5% for a 30-year loan now—as the Federal Reserve tapers the bond-buying binge that has kept rates low. And mortgages will be harder to obtain because of tighter lending restrictions from the Consumer Financial Protection Bureau. As a result, slower growth for housing. For sales of existing homes, a 4% increase in 2014, following a 9.3% hike last year. Slimmer growth, too, for starts and sales of new homes, but both will still see double-digit increases as builders grow increasingly confident and inventories of new homes remain tight.

3. By this time next year, Obamacare will find itself on sounder footing, even as critics continue to dig in their heels. The number of insured will steadily grow, the bureaucratic messes will be cleaned up, and the number of uninsured will decline. Obamacare will never be universally embraced, but approval of it will climb. First, however, more headaches as people get used to their new coverage. Headlines will focus on the failures: Folks who enrolled in the wrong plans, can’t get prescriptions filled because pharmacies don’t have their information and so on. Enrollment will fall somewhat short of the 7-million goal on March 31. And young, healthy people will shy away, perhaps even in large numbers at first. But success stories will emerge by the next enrollment period this fall.


4. Republicans will keep control of the House but won’t take over the Senate. They’ll come close, though, perhaps ending up just one or two seats short in November’s elections. The results guarantee a divided and deeply partisan government for the rest of Barack Obama’s presidency and set up a bitter 2016 presidential race. The key seats Democrats need to keep are in Louisiana, Montana and Georgia. The GOP needs all three to have a shot. The Louisiana job is held by Democrat Mary Landrieu. Montana will be represented by an as-yet unknown Democratic appointee if Max Baucus, a retiring Democrat, is confirmed as ambassador to China. Plus the GOP has to win an open seat it holds in Georgia, where Democrat Michelle Nunn, the daughter of former Georgia Senator Sam Nunn, is making waves.

5. Congress will soften the Patriot Act this fall by putting more limits on the government’s powers to collect private information about citizens. The broad national security law will be renewed, but more transparency will be added. President Obama will take his own steps, offering rules for using the phone records of Americans in the National Security Agency investigations. He’ll push for more openness on a secret court that oversees surveillance activities by U.S. intelligence agencies, too. Courts will weigh in as well. But in the end, some data will still be collected.

6. Tea party backers may pick up a seat or two in congressional elections. Still, their influence, in Congress and in politics in general, is in decline. One reason: Growing public disenchantment with the tea party after budget fights and the government shutdown, leaving mainstream GOPers less likely to cave to them. Tea partyers are steamed at House Speaker John Boehner but can’t oust him unless they increase their numbers or attract mainstream GOPers to their cause. They’ll battle him on budget and spending matters, for sure. There’s not much to do beyond that if Boehner is willing to count on Democratic votes to move House bills. After a rough start, Boehner can remain speaker for as long as he wants to. But don’t be shocked if he gives up the job and his seat after the elections—especially once those results show his party coming up short of a Senate majority.

7. A grand bargain on tax reform and entitlement reform won’t happen. It requires too much heavy lifting and political risk for incumbents on the ballot. Congress will approve a new debt ceiling increase with little pushback. Sure, the parties anticipate another battle that puts the U.S. credit rating at risk. But here’s why it won’t happen: Treasury officials can push back the deadline until March or April. By then, with tax revenues rolling in, it can keep paying bills into the summer when lawmakers are ready to go home and start campaigning. The closer the vote comes to November, the better the odds are for a quiet extension.


8. Expect local efforts to block natural gas drilling to intensify this year, especially in Ohio and Colorado, where a handful of cities are already challenging regulations that give companies wide latitude in choosing where to explore. Maybe in Pennsylvania as well, following a state Supreme Court ruling giving localities the ability to block fracking. The naysayers will be a minority. Many places like the new jobs and revenue. Also in the cards: A surge in offshore drilling in the Gulf of Mexico, thanks in part to Mexico amending its constitution to allow private firms to work in the energy sector. Guidelines for drillers, pipeline builders and the like are coming. Many fields in Alaskan waters are ripe for rejuvenation once outside companies are allowed to employ drilling know-how that Mexican energy workers don’t have.

9. Set for the next big tech breakthrough? Look no further than your wrist. A new category of smart watches is a good bet to emerge in coming months. Think of it as a merging of Dick Tracy’s wrist radio and Capt. Kirk’s communicator—a wearable device that allows you to store passwords, track data and do other tasks. The watch will catch on first with consumers looking to be among the early users but will quickly find business uses, just as the iPad did when it was introduced. The earliest versions are likely to come from Google, Apple and Microsoft.

10. Iran will drag its feet in deciding whether to shutter its nuclear program. But the situation won’t escalate in 2014. Tehran will take just enough steps to keep prospects of a permanent pullback in play, and the U.S. and other countries will respond by holding off new economic sanctions. President Obama, especially, is eager for a diplomatic resolution instead of a potentially messy military operation. A speedy dismantling of Iran’s nuclear capabilities isn’t in the cards. That’ll take years—and new religious leaders who embrace economic power.