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Economic Note: U.S. Economic Update & 2015 Outlook


by Patrick J. O'Keefe, Director of Economic Research

The U.S. economy approaches the end of 2014 in its best shape in a decade and is expected to expand further, but at a gradually slower pace over the course of 2015. 

Current conditions

On the broadest measure of economic activity, real gross domestic product (GDP) – that is, total output of goods and services, adjusted for inflation – the U.S. has recently concluded its best performance since 2003. Growth since March has been broadly distributed, with exceptionally strong (and accelerating) contributions from the business sector and somewhat slower, but still significant, increases in household spending.

Total employment is at a record level and the pace of jobs growth has accelerated. Year-to-date through November, jobs growth has exceeded 2013’s comparable period by almost one-fifth. The labor market data are mixed, however. Employment is at a record high and unemployment is two-fifths below the recessionary peak. On the other hand, labor force participation is at a 36-year low and workers’ inflation-adjusted earnings are equivalent to where they were in mid-2009.

Much of the damage done to the nation’s financial foundation by the meltdowns in the financial and housing markets has been repaired. Financial assets have surpassed their prior peak (mid-2007) valuations; but homeowner equity has not reclaimed its prior record, despite considerable progress on pricing and mortgage refinancings.

Businesses and households have realigned their balance sheets; on net, they have reduced their outstanding debts and the costs of servicing them. And the reductions in their financial obligations have been complemented by incremental income increases and streamlined spending.  

As is evident in the more optimistic outlook of both businesses and households, the cumulative impact of all of these changes bodes well for 2015.


In the 60 years prior to the start of the 2008-2009 recession – a period encompassing nine business cycles (i.e., contractions through expansions) – the U.S. economy grew an inflation-adjusted average of 3.5% per year. Since the recovery began in June 2009, real growth has averaged 2.3%. (If the contraction phase of the cycle is included, the average is 1.3%).

The consensus forecast is for real GDP to expand by 3.0% in 2015. Employment is expected to continue to grow at about the same pace as in 2014 (approximately 240,000 net new jobs per month) and, if so, the unemployment rate would slip to 5.5% (a bit below its current level). The pace of growth is expected to decelerate gradually over the course of the year.

Among the most obvious risks to the relatively optimistic outlook are: potential missteps in the “normalization” of domestic monetary policy; slower growth elsewhere around the globe; and the ever-present “geo-political” events.

But on current trend, the expectation is that the U.S. economy in 2015 will record its best performance in a decade.

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