Economic Predictions for 2015
Offering economic predictions should be based on facts, reasonable interpretation of available data, a review of history and other similar factors. Furthermore, it should be admitted by those making the predictions that there are two other elements involved. The first being the person’s own views, which may conflict with actual conditions and be based on a certain amount of guess work.
Therefore, it is safe to say that the economy will undergo a certain degree of change that will have an impact on the money supply. This will affect the gross national product and a continuing increase of many operations leaving the U.S. for other locations where labor is cheaper, and the environmental and safety laws are less stringent.
However, there are certain trends and issues that the economy and therefore, the business community and accordingly the people in their roles as consumers, investors and providers must consider.
Thus, it is necessary everyone starts with the current conditions and then looks to the future. We are seeking the market at record highs according to the major indexes, such as the Dow Jones Industrial Average.
While this, along with the S&P and other indicators give an indication of where we are today and where we have been, they do not tell us exactly where we are headed.
Because interest rates are still relatively low, the upcoming holiday shopping season is expected to be more robust, and savings are increasing, 2015 should be off to a good start.
There will also be some additional confidence among consumers because the Republican Party will be in control of the House and Senate, while a lame-duck Democrat occupies the Oval Office in the White House.
While the Republicans have gained a majority in the House and Senate, they do not have enough votes to override presidential vetoes.
Thus, efforts to repeal the Affordable Care Act will not be successful.
As the hallmark of his Presidency, Barrck Obama is not going to let the Affordable Care act be scuttled, despite the claims of any Congressman.
This is good for the economy. Insurance companies are selling more policies and thus are investing more and paying greater dividends. More people are buying policies, which will take some of the financial burden off the federal and state governments to provide health care.
Granted, subsidies for the AHC policies, Medicaid and local assistance for the needy will still be a major expenditure for governments, but not as big as it has been.
Prior to the ACH, many who could not purchase insurance because of age or prior health conditions can today purchase insurance. These people have viable options that did not exist in 2013.
It is necessary to look at the price of oil and its impact on the economy. Saudi Arabia, the leading producer among the OPEC nations has been dropping the price of oil. This is probably a short-term strategy and is not a new idea. The Saudi government has done this in the past in an effort to bring the other members of OPEC back to the table and to begin importing strict production quotas.
However, Saudi Arabia’s grip on OPEC is not as strong as it once was. Some nations, such as Venezuela, do what pleases them. That country has a tremendous investment in the United States refining industry. Therefore, that supply of oil will not be interrupted.
Secondly, despite the claims of the naysayers of a few years ago, the United States and the world is not running out of oil. It has been the discovery of shale oil and the use of hydraulic fracturing or “fracking” and horizontal drilling that has made production possible, but expensive.
However, it is unlikely that there will be enough of a price drop to cause any serious decline in shale oil production. Refineries will take advantage of the drop in oil prices.
This will lead to lower gasoline prices and accordingly increased consumption. Together, those factors lead to higher profits for the refining industry. The cheaper oil lowers operating costs, thus reducing the price of gasoline. Lower fuel prices lead to more purchases at the pump.
The Stock market becomes the next big issues. While the market is doing well, it may be when some companies start to split shares. Some people like this practice and some do not. This can lead to a temporary sell off if such announcements begin to circulate.
Again because Congress is controlled by one political party, and the President is the leader of the opposing party, Washington is not going to be able to accomplish much. There will probably be delays in adopting the budget, which is not unusual, but is not helpful to the economy.
Finally, there is still uncertainty about what the Fed, or the Federal Reserve System, is going to do regarding interest rates. The Fed has kept rates at the near-zero level for an extended period, which has encouraged spending and large-scale investments where the returns were greater.
However, it has also made it harder for individuals to find attractive investment options such as certificates of deposits or CD’s. Eight years ago, interest rates for certificates of deposit were at the seven percent level with a five-year maturity date.
Since 2008, the CD, which is a primary investment option for many individuals, has dropped to the one percent.
The Fed will need to move the rates upward, with caution so the action does not fuel inflation or prevent the investment of funds in other opportunities.
Thus, to sum it up, the coming year looks better than the year that is about to end. This year, 2014, we have seen increased employment, major changes in the health care delivery system and the recent decline in energy prices. It is likely that the Fed will have to begin raising interest rates. Doing so can put more money in circulation. People see the CD and other similar instruments as secure and stable investment opportunities that pose virtually no risk.
The issue of military conflict has not been addressed because it is virtually impossible to predict how such events will affect the economy. WWII was responsible for lifting the country out of the depression that started in 1929. Other conflicts have led to dangerously high inflationary spirals. Forecasting the economy is much like forecasting the weather a year in advance.
There are things that happen that cannot be controlled or even prevented. Thus, the one piece of advice that can be offered is for the small investor, those seeking to invest the life insurance benefits of a deceased loved one, or who have sold a house and downsize to a smaller one and have idle cash.