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FMA: Four Key Influencers of 2014 Economy
Jan 9, 2014
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The path for the 2014 U.S. economy looks much like the 2013 path, with just enough impediments to keep America stumbling, but surviving, for yet another year, according to the Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association, International (FMA).

Dr. Kuehl listed four key influencers in the forecast:
• The Fed and the financial community as a whole
• The impact of politics
• The reactions of the manufacturer and the general business community
• The consumer

The Federal Reserve will face major issues in 2014, including a new Chair and other personnel changes.

“Yellen is not facing an easy transition,” said Dr. Kuehl. “In all likelihood, the Fed’s major actions will stay as they have been for the bulk of 2014. No interest rate hikes or changes to the reserve ratio, or even to the interest that banks earn on the money they have at the Fed are likely. The cautious and slow reduction in the bond buying process is the only real difference that will be observed in 2014.”

He noted that the banks' very slow loosening of credit will continue into 2014.

Dr. Kuehl said that, for the third year, political issues in 2014 will be serious enough to cause a real decline in the economy’s overall performance. He noted that no real decisions were made in 2013—they were postponed until January and February of 2014. Candidates up for election, and fearful of a primary challenge, in 2014 they'll not be inclined to do anything to alienate their core voters.

“This will make deal-making almost impossible, as the candidates will be rewarded for their obstinacy and punished for any hint of flexibility”, said Dr. Kuehl. “Political games will do nothing to help the economy grow and may actually do some real damage, perhaps dragging the GDP growth rate down by half a point over the course of the year.”

While the news through the business world in the closing months of 2013 was upbeat—but Dr. Kuehl had a word of caution. He said much of late-2013's positive data was due to "fairly dramatic" inventory build-up.

He noted other conditions that bode well for manufacturing production: improved accessibility of credit and strong export demand. Raw materials prices are generally low; labor costs are low as well, although many companies are still struggling to get qualified workers.

“By the middle of 2014 costs will likely be rising across the board," predicted Dr. Kuehl. “The producers of metal and other raw materials have been reducing production to bring supply in line with demand. Wages will rise for the people needed as they will be in short supply, and any pickup in business will make them that much more valuable. The bottom line is that business has maybe six more months of favorable conditions before the prices start to adjust and rise.”

He noted the three factors that traditionally motivate consumers to begin spending: housing prices, jobless rates, and the price of gasoline. Though all three are trending in the right direction, the consumer does not appear to be motivated. “It appears that consumers are not being affected by the political crisis that never ends and that they have become deeply skeptical about potential for real recovery”, states Dr. Kuehl. “If that attitude persists, the first quarter will be weak, and a big rebound in attitude is unlikely for the course of the year. This will lead to anemic growth of between 2.5% and 3.0%."

He concluded that 2014 will be much like 2013 – "a year to be stumbled through and survived."

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