Bankers Expect Housing to Lead 2.9% US GDP Growth in 2015

Bank chief economists agree that healthier banking and real estate sectors, lower household debt and ‘calmer’ political climate will accelerate US economic growth

American Bankers Association

The U.S. economy will accelerate in 2015, with GDP growth forecast to reach 2.9%, compared to last year’s 2.5% growth. Ethan Harris, chairman of the American Bankers Association (ABA) Economic Advisory Committee and co-head of global economics research at Bank of America Merrill Lynch, described “a healing economy” in 2015 that will see above-trend growth and low inflation.

The ABA’s Economic Advisory Committee, 15 chief economists at some of the nation’s largest banks, cited three reasons for the bullish outlook: healthier banking and real estate sectors, improved household balance sheets and a “calmer” climate in Washington. “The days of aggressive fiscal austerity are over,” said Harris, noting the group expects the federal budget deficit will stabilize at $470 billion in fiscal year 2015.

The committee expects the Federal Reserve to maintain near-zero interest rates through mid-2015, with a predicted but “gentle” rate hike sometime in Q3. “We expect the Fed to calibrate its policy to minimize any shock to growth,” Harris explained.

The group sees falling energy prices as a net positive for the U.S. economy. Low prices will hurt the oil patch, cutting into mining employment and capital spending. However, this will likely be more than offset by the boost to energy consumers.

Despite weakness in energy-sector investment, the group sees business investment as a strong point for the economy. The consensus forecast is that business investment will rise 5% on an inflation-adjusted basis this year.

Predicted job growth of 200,000 per month or higher, falling energy prices and a forecast 5% rise in business investment are all positive factors for the economy. “Solid job growth, improving wages and lower energy costs should encourage more families to spend,” said Harris.

The group expects residential investment to be stronger this year with gains in single and multi-family starts and home sales. The EAC expects home prices nationally to rise 3.5% this year.

"With home prices on the rise, families are once again viewing homes as good investments," said Harris. "Even if mortgage interest rates rise some this year, more people are going to want to buy a first or larger home."

The group's consensus is that mortgage rates will rise only from about 4% now to 4.5% by year-end.

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