Economy expected to gain momentum in 2014, lifting growth to fastest pace since recovery began

WASHINGTON – The U.S. economy likely grew solidly in the final quarter of 2013, momentum that’s expected to carry into this year. Most economists think 2014 will produce the strongest growth since the recession officially ended in June 2009.

On Thursday, the government will make its first of three estimates of economic growth for the October-December quarter. Economists are forecasting an annual growth rate of 3.3 per cent, after an even stronger 4.1 per cent rate for July through September.

For all of 2013, analysts think the economy grew about 1.9 per cent. That would be below the 2.8 per cent growth for 2012 as measured by the gross domestic product. GDP represents the country’s total output of goods and services.

For all of 2014, analysts are more optimistic. Many foresee GDP growth of 3 per cent or better.

A key reason for their optimism is an improved outlook for the government sector. Overall growth was reduced by an estimated 1.5 percentage points in 2013 because of a drag from higher federal taxes and deep government spending cuts. Those effects are expected to subside in 2014.

This year, economists also think the economy will get a lift from continued gains in hiring. Further steady job growth would give more households money to spend and help lift consumer spending, which accounts for about 70 per cent of economic activity.

In addition, U.S. manufacturers are expected to get a lift from rising global demand. And at home, housing construction and auto sales, which showed strength last year, are expected to register further gains in 2014.

Because of the stronger growth prospects, the Federal Reserve on Wednesday announced that it would continue to reduce the monthly bond purchases it’s been making to try to boost the economy.

The Fed bought $85 billion a month in bonds last year to try to keep long-term interest rates low. It announced an initial $10 billion reduction in December. And after its meeting Wednesday, it announced another $10 billion cut. That will put its monthly purchases at $65 billion.

Many analysts think the Fed will keep paring its support at each of its meetings this year until it eliminates new bond purchases entirely in December.

In making the announcement, the Fed cited an improving economy, including more strength in consumer and business spending.