One of the nation’s leading economists forecasts that the U.S. economy will grow at its best pace since 2004, adding 3 million jobs and generating the sale of 17 million autos.
PNC Senior Economist Stu Hoffman told the Detroit Economic Club, “I can’t tell you the economy is firing on all cylinders, but we’ve certainly added a few more.” Hoffman noted that on his last visit to the club, in 2012, he described the economy as “an eight-cylinder engine firing on four cylinders.”
Overall, Hoffman’s forecast sees U.S. gross domestic product — the combination of all purchased goods and services in the nation — growing at a rate of 3.3 percent this year. That’s despite slow growth in the first two months. The economy showed the same pattern last year, Hoffman notes, but revved up later in the year.
He attributes the slow first quarter in both years to the extreme winter weather and, this year, to the addition of the West Coast port strike.
Lower oil and gas prices will pump $110 billion into consumers’ pockets instead of their gas tanks but, so far, drivers are sitting on that cash, which suppresses growth in an economy where 70 percent of the activity comes from consumer spending.
“Some of that will be spent,” Hoffman predicted. “These disappointing consumer spending numbers aren’t likely to last.”
Low oil prices are also likely to benefit state and local governments by freeing up gas money for other uses, he added.
As it did last year, the economy should add another 3 million jobs, pushing the national unemployment rate down to 5 percent. But with millions working part-time when they need full-time jobs or earning less than they used to, the employment outlook is far from recovered.
“Falling to 5 percent unemployment is not the promised land,” Hoffman said. “There’s still work to be done.”
If job growth can start to push up wages, that would help prompt the Federal Reserve to finally raise interest rates, a move Hoffman said he expected to come after either the July or September Open Market Committee meetings.
“They will be doing something the Fed has done since June 2006 — and that’s raise the interest rate,” Hoffman said. “You might see some over-reaction in the stock market. But if your doctor tells you he’s taking you off your medicine because you’re better, that’s good news.”
Despite a slow first two months and weak economies abroad, Hoffman’s forecast sees Metro Detroit adding 20,000 jobs and pushing the local jobless rate down near 7 percent, along with overall growth in the U.S. economy and continued gains in the stock market.
“I think if you’re bearish on the U.S. economy and stocks,” Hoffman warned, “you’re going to get boiled in cheap oil.”