MCLEAN, VA - Freddie Mac released, showing the four key ingredients labor, income, fixed investment and trust required to lift the economy toward robust sustainable growth are still lacking the necessary thrust. A video preview, along with the complete October 2014 U.S. Economic and Housing Market Outlook and forecast table, is available here.
Projecting the unemployment rate to average around 5.7 percent next year as many of the missing 25-54 year olds who have dropped out of the labor market start to return, driving participation rates up.
A faster GDP growth rate is the essential step to getting broad-based income growth. Unfortunately, the economy can't perform at its highest level until this happens.
Fixed investment has picked up, but as a share of total GDP it is still about 2 percentage points below the levels reached prior to the Great Recession. Housing's share of this investment is particularly lagging.
Long-run demand means new home construction needs to ramp up to a pace of 1.7 million additional housing units each year. Over the past twelve months, there have been about 1 million housing starts.
The final ingredient we need for lift off is arguably the most fragile today. Fortunately, headlines about fiscal and monetary policy have ebbed and total economic policy uncertainty is near the lowest level since the end of the Great Recession.
Frank Nothaft, Freddie Mac vice president and chief economist stated, "Renewed confidence and declining uncertainty are starting to unfold. However, fears of a slowdown in Europe and a multitude of crises overseas have struck a blow to confidence in recent weeks. While the recent news on the domestic economy has been positive, we are keeping a wary eye on the economy to see if confidence falters. That said, labor markets are healing, incomes are starting to rise, and fixed investment is increasing so trust and confidence should start to build throughout the economy. But the trust and confidence won't sustain if wages don't rise as well. Combined, these forces, once firing on all cylinders, can provide the lift off needed for economic growth to be stronger in 2015."