After five frustrating years, the economy is ready to bust out. Stocks already had a banner run in anticipation of the rebound, housing is scorching, and jobs won’t be far behind. There are plenty of moves you can make with your money to play to these strengths, even if the economy pulls some punches. In Money magazine’s Make More in 2014, you’ll learn how to play to the economy’s strengths while making the necessary adjustments to navigate the stock and bond markets at a time of lofty valuations, the real estate market at a time of rising borrowing costs, and the job market at a time of new opportunities.
There comes a point in every feel-good story when the protagonist, after being beaten down or put upon for years, finally musters the strength to get up off the floor and face the challenges at hand. At long last, that’s where the economy finds itself today. No one is predicting herculean growth in 2014. The consensus among forecasters surveyed by the National Association for Business Economics is that U.S. gross domestic product will actually expand a bit slower than the average rate of growth since 1930. Yet for an economy that has performed slightly worse than expected in 2013 — and that has faced one calamity after another since the global financial panic — next year should mark the first time since the housing market’s collapse that growth reaches the 3% mark, which has historically served as the dividing line between strength and weakness. Plus, “the underlying fundamentals in the U.S. economy are stronger than the numbers would suggest,” says Tim Hopper, chief economist for the investment manager TIAA-CREF. For instance, as housing roars back to life, consumer spending and job creation should also see a boost. For instance, as housing roars back to life, consumer spending and job creation should also see a boost. To see how — and for other positive signs — consider the following.
1. Europe is coming back
The continent’s economy is expected to expand about 1% next year. That’s not exactly sizzling, but corporate profits there are recovering much faster. Past 10 years GDP: 0.9% Earnings: 8.1% Past 3 years GDP: 0.2% Earnings: 3.1% Next 3-5 years GDP: 1.4% Earnings: 10.1% Sources: Bloomberg, Eurostat
2. Housing is back
Each new home that’s built creates about three new jobs, and new construction is expected to exceed 1 million units for the first time since the crisis. (See table below.)
3. Policymakers will back off
The Fed stated it will start raising rates only after unemployment falls to 6.5%. Even if job creation picks up, that could take over a year. When will unemployment hit 6.5%? If the monthly rate of job creation is…. 300,000: 1st quarter 2014 250,000: 4th quarter 2014 200,000: 3rd quarter 2015 150,000: 1st quarter 2018 Notes: For unemployment rate calculation, labor force participation is assumed to grow from 63.6% to 64.2% by 2014. CBO projections are used thereafter. Source: The Hamilton Project