Herewith some thoughts about the outlook for this year. Thoughts, not forecasts, for which I have neither the skill nor the courage. I offer these thoughts in deference to the understandable demand for look-aheads. Human beings are always hunting for certainty, attempting to reduce randomness, surrendering to what Harvard’s Walter Friedman in his new book (Fortune Tellers: The Story of America’s First Economic Forecasters) calls “the near universal compulsion to avoid ambiguity and doubt.” But there is more to the demand for forecasts than this desire for certainty. Businessmen and policymakers want to use forecasts to change the future, to adapt products to predictions of changes in consumer taste, to structure finances so as to take advantage of predicted changes in interest rates and thereby change earnings in the coming year, to obtain “the ability to alter the very thing that one predicts,” to borrow from Friedman. In short, it is often the goal of the purchaser of a forecast to act so as to prove his seer wrong, and then hire him the following year to repeat the process.
Recent data suggest that 2014 will be a better year than 2013, at least so far as the economy is concerned. Yet more than 60 percent of Americans think the country is on the wrong track, that things will get worse in this new year. One possible explanation for this divergence is that the wisdom of crowds is not all it is cracked up to be. Another is that the cheery data are gossamer, to be blown away by the gusts emanating from the Federal Reserve Board’s announced tightening of monetary policy, its beaching of QE3. A third is that the data correctly portend better times, but the majority of Americans who argue that we are on the wrong track do not expect to benefit, at least not sufficiently to feel as if they are benefitting. Increased economic growth cannot convince the 1.3 million recipients of emergency unemployment benefits who will be losing about $300 per week unless congress acts, or the millions of middle class families suddenly afflicted with the higher health insurance premiums imposed by Obamacare, that the country is on the right track. Even beneficiaries of an improvement in their own economic circumstances, but among the majority of Americans who say their president is neither honest nor trustworthy, can reasonably argue that the nation is on the wrong track, their own good fortune notwithstanding.
Still, and despite these dissatisfactions, consumer confidence is rising, with expectations for the future and for job prospects leading the indicator up from levels reached during the October government shutdown. These confidence polls are not an infallible guide to consumer behavior, but better an upward movement than a downward plunge, especially when the improvement in confidence seems firmly rooted in economic reality.
That reality is this. The housing market, which last year contributed importantly to such growth as the economy managed, shows little sign of flagging. With average house prices still about 16 percent below the pre-bust high (the average conceals a wide range for different cities), we do not seem to be in bubble territory. Nor are we likely to enter that danger area now that mortgage rates have risen in response to the Fed’s decision to “taper”—reduce its $85 billion monthly bond-buying by some $10 billion, reversible if the economy falters. With the demand and supply of houses more nearly balanced, home builders are stepping up construction. Prices will continue to rise, although only half as rapidly as they did last year if experts prove right. It is not inconceivable that we will have a Goldilocks housing market this year. Not too hot (bidding wars will be fewer), nor too cold (so will foreclosures and sales of distressed properties).