January’s strong employment report bolsters the case that the U.S. economy will accelerate this year, according to a 2015 economic forecast presented Friday in Denver by UMB.
“We are approaching escape velocity,” predicted KC Matthews, chief investment officer at UMB Financial Corp., which is based in Kansas City, Mo., but maintains a large presence in Colorado.
For the past three months, monthly job gains have averaged 336,000. If job growth can average 250,000 or more a month, that would support U.S. GDP growth of 3 percent, up from the 2.4 percent pace seen in 2014.
At 3 percent economic growth, corporate revenues are likely to grow 4 percent and corporate earnings 6 percent.
That should contribute to a 10 percent gain in equity indices this year, Matthews forecast.
Stronger job growth and falling fuel prices are boosting consumer confidence. The share of the population underemployed or unemployed long-term, while still elevated, is moving closer to historical averages, and there is now one job opening for every two unemployed workers.
A measure of small-business confidence from the . In three of the four times that most recently happened, GDP growth topped 4 percent, while in 2004 it reached 3.2 percent.
Matthews said the increased confidence and willingness of consumers to borrow and banks to lend will give housing a boost, raising this year’s GDP rate by 0.5 percentage points.
He forecasts home construction permits will jump from 1 million to 1.4 million, closer to the historical average, as more young adults find job opportunities and as the seven-year window to expunge foreclosures and missed mortgage payments is reached.
Between 5 million and 10 million households, their time in the penalty box expired, will regain access to the credit they need to purchase a home, he said.
UMB is favoring domestic small cap and large cap stocks, although the firm may shift more of its investments into Europe as recovery takes hold there this year.
He warned the audience to expect volatility in equities and to be cautious about their fixed-income investments. UMB is calling for the Federal Reserve to lift its federal funds rate in the fall.
Geopolitical risks, in particular Russia, represents the largest risk to the forecast, he said, comparing Russia to a wounded animal.
“We have no idea what a wounded animal will do,” Matthews said.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or twitter.com/aldosvaldi
