two men on stage

Pockets of Optimism: Consumer Spending Bolsters the Economic Outlook

This year, Americans will be packing a bit more spending power — the chief factor driving a fairly optimistic forecast painted by Chapman University economists.

Even though the length of the recovery has been long, it still has legs,” said Chapman President Jim Doti, Ph.D., during the University’s 37th Annual Economic Forecast, presented Dec. 3 at the Segerstrom Center for the Arts in Costa Mesa. “We’re not bumping up against a wall.”


Unlike 2013, when the economy had
to withstand a decline in federal
spending, Chapman economists
project that federal government
purchases will increase for the first
time since most of the Recovery
Act’s spending wound down.
• Moderate price pressure will keep
the Federal Reserve Board mostly
on the sidelines in 2015. As a result,
it’s extremely unlikely that the Fed
will act aggressively in pushing up
interest rates. It is likely, however,
that it will allow demand pressure
to exert some upward force on both
long- and short-term rates.
• While job growth will induce higher
levels of household formation, relatively
low housing affordability will dampen
home-buying activity.

Some of the best news out of the forecast was that the nation’s gross domestic product is expected to hit an average annual growth rate of 3 percent in 2015, the best performance since the recession. Feeding that uptick are stable housing prices, the stock market’s strength and falling gas prices.

“Right now consumers are in a very advantageous position,” Doti said.

While housing values are expected to grow by just 4 percent, Doti counted that as a plus in the long run because rapid run-ups in home values can lead to a bubble.

“The fact that housing is moving along positively but not at a rapid rate is really a positive,” he said.

The economists acknowledged that the possibilities of economic slowdown in China and recession in Europe are a concern for U.S. exports. But the growth in Canada and Mexico — the Mexican economy alone is expected to grow 3.5 percent — will likely offer some cushion against those losses. In addition, California employers are expected to add 364,000 jobs to the economy, a 2.4 percent gain, said Esmael Adibi, Ph.D., director of the A. Gary Anderson Center for Economic Research. The report sees solid growth in the pharmaceutical and healthcare sectorsas well.

A genuine concern, though, is that California’s wages are growing slowly, a problem that could drag down the state’s efforts to trim debt and boost pension funds and other retirement and healthcare needs, Adibi said.

“Yes, the economy is improving, but this is the time to address some of the more long-term challenges,” Adibi said.

The annual forecast is based on the Chapman Econometric Model, inaugurated in 1978 as a faculty-student research project. Since that time, the Anderson Center has delivered some of the nation’s most accurate economic reports. From 2004 to 2013, Chapman forecasts were more accurate than those of all 30 Blue Chip agencies that issued such reports.

Dawn Bonker

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