ANN ARBOR—The U.S. economy will continue its steady climb upward over the next two years, say economists at the University of Michigan.
"Washington inflicted quite a bit of short-term damage to the U.S. economy in 2013," said Daniil Manaenkov of the Research Seminar in Quantitative Economics in the U-M Department of Economics.
"Despite a seemingly heavy burden of domestic fiscal austerity and monetary slip-ups, the U.S. economy has demonstrated remarkable resilience. This makes us hopeful that once fiscal headwinds abate, we will see a meaningful acceleration of GDP and payroll job gains."
In their annual forecast of the U.S. economy, Manaenkov and colleague Matthew Hall predict the creation of more than 5 million jobs over the next two years—2.5 million jobs next year and another 2.8 million during 2015, as unemployment falls from 7.1 percent to about 6 percent during that time.
They say that overall economic output growth (as measured by real Gross Domestic Product) will ramp up from this year's rate of 1.7 percent to 2.7 percent in 2014 and 3.1 percent in 2015—the first annual reading above 3 percent since 2005.
In addition to solid growth in GDP and employment over the next two years, the forecast calls for a steadily recovering housing market. The construction of new homes, both single-family and multi-unit housing, will continue to rise from 920,000 units this year to about 1.2 million next year and nearly 1.5 million the year after.
Sales of existing single-family homes are expected to rise from about 4.6 million this year to 4.9 million in 2014 and 5.2 million in 2015.
"The housing sector is expected to be a solid contributor to growth in the next two years, reflecting an anticipated increase in household formation, as well as rising incomes," Manaenkov said. "We expect that with affordable rates and an improved payroll outlook, housing construction will accelerate next year."
Conventional mortgage rates will edge upward during the forecast period from a this year's 4 percent average rate to 4.6 percent in 2014 and 5 percent the year after.
Other interest rates will remain relatively moderate, as well. The 10-year Treasury note will creep up from 2.3 percent this year to 3 percent next year and 3.5 percent in 2015, while the three-month Treasury bill rate will hold steady at 0.1 percent in 2014 and 0.3 percent the following year.
According to the forecast, core inflation will remain below 2 percent over the next two years, oil prices will hold firm around $95 per barrel through 2015, and light-vehicle sales will steadily rise from 15.5 million units this year to 16 million next year and 16.3 million in 2015.
"Strength in domestically produced vehicles has helped drive the sales recovery since 2009," Hall said. "And pent-up demand remains strong. The average age of vehicles on the road has continued to rise, and younger drivers, who are more likely to be unemployed or debt-constrained, have been underrepresented in the market to date.
"Together, these facts suggest further growth in vehicle sales in the coming year, as unemployment continues to fall."
The U-M forecast is based on the Michigan Quarterly Econometric Model of the U.S. Economy and compiled by the U-M Research Seminar in Quantitative Economics.