On December 20, the Bureau of Economic Analysis announced an upward revision to its third-quarter estimate of Gross Domestic Product (GDP) growth. This was consistent with the run of positive economic news that emerged toward the end of 2013. The question now is whether that momentum can be maintained in 2014.
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Real GDP is now estimated to have grown at a 4.1% annual rate in the third quarter, up from an original estimate of 3.6%. It's not just the upward revision that's a good sign for the economy -- getting the GDP growth rate up above 4% has been a tough trick to pull off in recent years. This was just the second quarter since before the Great Recession to exceed that level.
In the past 30 years, there have been nine years when real GDP growth was more than 4%, but only one year where it exceeded 5%. So, 4% GDP growth can be considered something of a standard of good health for the economy -- if it can be sustained.
Here are five keys to keeping this momentum going through 2014:
- Getting wages up. Unemployment is dropping, but average hourly earnings are up just 2% year-over-year. Consumers need their wages to get a little further ahead of inflation in order to fuel stronger growth.
- No surprises from Washington. Yes, the bipartisan budget deal was a good sign, but there are still rumblings about the debt ceiling. The economy will run more smoothly in 2014 without another dose of politician-induced drama.
- Foreign demand. The world's economy is still heavily dependent on the U.S. economy, so ideally the recent improvement in the U.S. will spur another wave of global growth.
- Global stability. Of everything on this list, this may be the most subject to surprises, but a more internationally engaged Russia and a saner Iran were among the encouraging signs late in 2013.
- Investor realism. 2013 was another good year for the stock market and real estate, and another bad one for savings accounts. The common factor in all three? The unusually low level of interest rates. Current mortgage rates are still among the lowest in history, and rates on savings accounts and bonds are not high enough to provide serious competition for the stock market. Investors need to understand that as those interest rates start to return to normal levels, it will stunt some of the growth in stocks and real estate. If the markets can make the transition to higher interest rates without getting panicky, it will help some of the wealth that has been created find its way into the broader economy.
As is the case every year, the unexpected will probably play a hand in 2014 as well. Going into the year though, the five factors above seem to hold the keys to whether next year can build on 2013's improvements.
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The original article can be found at Money-Rates.com:
5 keys to the 2014 economy