Economists predict sluggish growth this year

Economic forecasts from various factions for 2014 sound a lot like those that were prognosticated for 2013: Expect more sluggish growth.

Indiana University Kelley School of Business economists went so far as to predict 2014 will be "disappointing" with a "tepid" economic recovery.

"For at least the past year, the economy should have been able to achieve growth close to, perhaps above, its long-run potential of 2.5 to 3.0 percent. Yet growth remains stuck in a sub-2-percent rut," said Bill Witte, associate professor emeritus of economics at IU, in the school's annual forecast.

"We can find only one plausible explanation: Policy from Washington is standing in the way all across the board."

Through the first half of 2013, the economy grew at an annual rate of 1.7 percent, "far short of everyone's expectations," according to the IU report, which expects the first half of 2014 to experience "unacceptably slow growth" of about 2 percent. Inflation will remain contained and close to its present level of 2 percent.

The Business Roundtable CEO Economic Outlook Survey similarly expects slow growth in the range of 2.2 percent for the coming year, reflecting "slightly increased optimism despite an underperforming economy that continues to grow more slowly than we all would like."

"CEOs remain concerned about ongoing uncertainty stemming from the continuing fiscal stalemate that in turn prevents work on, among other priorities, reforms to the corporate tax code and our immigration laws, both of which if accomplished would improve the country's economic climate, attract investment and spur growth," according to the Business Roundtable report.

The Business Roundtable surveyed 120 CEOs in November, 73 percent of whom expected sales will increase in the next six months, while 18 percent anticipated sales to remain the same.

Evolution Finance Inc.'s WalletHub financial website was slightly more optimistic about 2014, predicting the GDP will rise to 3 percent while unemployment will slip below 7 percent.

"WalletHub interviewed a number of leading economists in preparing its 2014 predictions, and the general consensus is that the economy will continue its slow growth in 2014, turning the year into the transitionary period that "13 should have been and bringing the economy back on track heading into 2015," according to the site.

Meanwhile, the Institute of Supply Management's Business Survey Committee surveyed generally optimistic purchasing and supply executives for its 2014 economic forecast.

"Our forecast calls for a continuation of growth in 2014, building on the momentum from the second half of 2013. Respondents expect raw materials pricing pressures in 2014 to be low, similar to levels experienced in 2013, and expect their margins will improve," the ISM report stated.

Manufacturing experienced six consecutive months of growth from June through November 2013, while experiencing only one month of contraction during the entire first 11 months of 2013, according to ISM.

About 69 percent of respondents expect manufacturing revenues to be greater in 2014 than in 2013, with an overall 4.4 percent net increase in revenues for 2014, compared with a 4.6 percent jump reported for 2013 over 2012 revenues.

Among the 16 manufacturing industries expected to enjoy revenue improvement over 2013, the "plastics & rubber products" sector came in second behind textile mills.

"Manufacturing purchasing and supply executives expect to see continued growth in 2014. They are optimistic about their overall business prospects for the first half of 2014, and are even more optimistic about the second half of 2014," said Bradley Holcomb, chair of the ISM Manufacturing Business Survey Committee.

About 58 percent of non-manufacturing supply management executives surveyed expect a 3.6 percent net in-crease in overall revenues for 2014 compared with 4 percent growth reported for 2013 over 2012 revenues.

Among 14 non-manufacturing industries expecting revenue improvement in 2014 over 2013 were the retail trade and transportation & warehousing sectors.

"Non-manufacturing supply managers report operating at 86.3 percent of their normal capacity, higher than the 84.7 percent reported in April 2013. They are optimistic about continued growth in the first half of 2014 compared to the second half of 2013, and they have a higher level of optimism about the next 12 months than they had last December for 2013," said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee.

Capital expenditures, which ISM noted as a major driver in the U.S. economy, are expected to increase by 8 percent in the manufacturing sector and by 4.6 percent in the non-manufacturing sector.

Employment is expected to grow—by 2.4 percent in the manufacturing sector and by 2.1 percent in non-manufacturing.

CAN Capital, an online small business lender, said it has seen a 28-percent increase in automotive repair shop funding since 2012.

"In 2012, we funded 458 auto shops between January and October and for the same time period this year we funded 588," said James Mendelsohn, chief marketing officer for CAN Capital, noting that a majority of the funding was earmarked for equipment purchases, working capital and inventory purchases.

"We've seen year-over-year increases in applications for small business loans," he said, "and we expect to see a comparable increase in 2014."

About 39 percent of Business Roundtable CEOs surveyed project higher capital spending in the next six months, up from 27 percent surveyed in the third quarter, while half expect spending to remain the same and 12 percent project a decline.

On employment, 34 percent of Business Roundtable member CEOs expect to add employees, while 45 percent expect employment to remain steady, with 22 percent projecting lower employment.

The positive predictions on spending is prompted in part by interest rates that are expected to remain low for the foreseeable future because of the combination of record-low credit losses and the Federal Reserve's commitment to retain current policies until more demonstrable economic improvement takes place, according to WalletHub.

"The Federal Reserve continues a totally unsustainable policy stance, with no real plan for how or when it will change course," said IU's Witte. "All of this has created great uncertainty for consumers and greater uncertainty for businesses. Even with an improved financial situation, households remain reluctant to spend. Meanwhile, businesses sit on piles of cash, borrowing is cheap, yet investment spending is extremely disappointing."

The hostile political environment is seen as a millstone around the neck of the U.S. economy by some analysts.

Uncertainty over the Affordable Care Act, debate over increases in the minimum wage and increased government regulations are considered disincentives to business hiring and investing.

Business Roundtable said 39 percent of the CEOs surveyed said regulatory costs were the top cost pressure facing their businesses over the next six months followed by labor and health care costs. Regulatory costs have been the CEOs' top cost concern for the past three years, the Business Roundtable noted.

ISM survey respondents reported that the most challenging problems facing their businesses are: domestic sales growth; government regulations; health care costs; health care reform uncertainty; ongoing government shutdown and debt ceiling concerns; inflation; international sales growth; and taxes.

On the upside, gas prices are expected to be cheaper. The U.S. Energy Information Administration expects retail gas will average $3.37 per gallon in 2014, down from $3.50 in 2013 and $3.63 in 2012, helped in part by the surge in domestic shale natural gas drilling.