Dennis Lockhart’s must-know outlook for 2014 and early 2015
Leading economic indicators
The chart below shows the trend in the Leading Economic Index (LEI) for the U.S., published monthly by the Conference Board. The index is made up of ten economic components, whose changes tend to precede changes in the overall economy.
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The performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF), which track large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM), also show how the U.S. economy is faring.
The President of the Atlanta Fed, Dennis Lockhart, is optimistic for 2014 and early 2015. Among other things, he expects the year to bring a resumption of growth to its 3% levels, employment gains, a healthier rate of inflation, and a better economy in general.
Lockhart supported his views by claiming that the economy’s fundamentals are stronger. In his view, basic conditions, such as banking, housing, energy, and manufacturing, have improved a lot over the recovery.
- The housing sector is much healthier, with reduced debt, higher savings, and stronger asset prices.
- Business conditions have improved significantly compared to pre-crisis levels, with reduced business and financial system leverage, increased profitability, and better liquidity on balance sheets.
- Fiscal imbalances are less of a near-term concern for now.
- Employment in the country has improved substantially.
Moreover, certain headwinds that were restraining growth seem to have receded.
- With the tapering of quantitative easing, the fiscal drag on the federal government budget has begun to reduce.
- The situation in Europe has improved. There remains little risk of another financial meltdown, and concerns raised over European sovereign debt and the exposure of the European banking system have eased in business conferences in the U.S.
However, Lockhart did express his concern regarding these potential headwinds.
- The situation in Ukraine calls for close monitoring, as potential disruptions in the European economy could easily spill over to the U.S.
- Growth is slowing in certain emerging market economies.