Think of the U.S. economy were a movie. Last year, the original came out, and it was so-so. This year? Expect a much better sequel, says UMB Bank's top investment strategist.
K.C. Mathews, executive vice president and chief investment officer for the Kansas City, Mo., bank, told 100 customers and other guests that U.S. economic growth should approach 3 percent this year, up sharply from the sluggish 1.9 percent growth he expects will be posted for 2013.
"Generally the sequel is not as good as the original, but I expect that the economy will be better than last year," Mathews said during a presentation Wednesday at the Garden of the Gods Club. "We will have the same cast of characters with the Federal Reserve, the consumer, Washington politicians and small businesses playing leading roles, an extension of the original plot of moderate economic growth with a lot of stimulus, but a surprise ending of a better result than last year."
Mathews forecasts that faster economic growth will generate about 200,000 additional jobs a month, up from 180,000 a month in 2013. That will reduce the U.S. unemployment rate to 6 percent by year's end from 6.7 percent at the end of 2013, he said.
He also anticipates that U.S. stocks, as measured by the Standard & Poor's 500 index, will grow another 8 to 15 percent this year after surging 32 percent in 2013, but not without a 10 percent correction, which hasn't happened for nearly two years.
Much of the growth this year likely will result from spending increases by state and local governments as improving economic conditions boost property, sales and other tax revenue. All but seven states are expected to increase spending this year from 2013 levels, and could end up being "the shining star of the economy, much like housing has been in the past few years," he said.
Inflation is not expected to be much of a threat this year because so many people are unemployed or underemployed, said Eric Kelley, UMB Bank senior vice president and managing director of fixed income. Inflation is typically driven by high wages, which are unlikely with unemployment well above pre-recession levels.
Kelley's forecast calls for interest rates to edge up this year by one-half to three-quarters of a percentage point.
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