They’re not exactly singing “Happy Days Are Here Again,” but business economists are feeling a little more upbeat about the recovery and job market heading into next year, according to a survey of the group released Monday.
The unemployment rate will continue falling next year, with the economy adding about 200,000 new jobs a month, according to the National Association of Business Economics quarterly survey, which was taken before Friday’s surprisingly strong November jobs report.
That strong pace of hiring should help boost wages, providing some relief to households struggling to make ends meet. Hourly wages will close out the year up just 1.8 percent this year, according to the group. They expect those wage gains will rise to 2.4 percent next year as lower unemployment will put pressure on employers to spend more to recruit and keep the best workers.
Despite the modest wage gains, the economists expect consumer spending to remain tight, growing just 2.4 percent next year after rising 1.9 percent in 2013. (Those forecasts are down slightly from the group’s September survey.)
A gradual rise in spending should help keep the U.S. on a slow but steady path of recovery from the Great Recession, with the overall economy ending this year 2.1 percent larger than it was a year earlier. The group expects economic growth to pick up gradually next year, with gross domestic product expanding by 2.8 percent. (That’s a bit slower than the 3 percent gain predicted in the September survey.)
Government spending cuts won’t help. Nearly 90 percent of the economists surveyed expect to see more federal spending cuts next year, but three-quarters of them think the impact will be limited to less than a half percentage point of GDP growth.
Those cuts are having a positive impact on the budget deficit, which shrank from $1.1 trillion in fiscal 2012 to $680 billion in the fiscal year that just ended in October. The economists expect the federal deficit to narrow a bit, to $600 billion, when the current fiscal year ends next October.
That assumes Congress doesn’t pull another budget stunt and shut down the government again, which cost the economy untold billions in workers’ furloughs and cancelled government contracts and rattled consumer confidence. The group puts the odds of another shutdown in January—when Congress faces another self-imposed deadline—at about 20 percent.
The group is also keeping a close eye on the other major government-related wildcard—the Fed’s widely expected decision to ease up on the money pumps that have been wide open since the financial collapse of 2008. Fed officials have said they plan to begin easing up on the flow of fresh cash as the unemployment rate falls to 6.5 percent.
The business economists group expects the central bank to begin “tapering” its massive program of money creation—currently running at about $85 billion a month—sometime in the first half of next year. About two-thirds of the group thinks that will happen in the first quarter of 2014.
Investors fear the Fed’s policy shift could throw cold water on stock prices, which have been on a tear while much of that cash has been flowing into the stock and housing markets. But the economists expect the market’s rally to continue next year, based on their expectations that corporate profits will continue to rise, picking up momentum from a 5.0 percent gain in 2013 to a 6.1 percent advance in 2014.