On the Horizon: 'A Strong Year for Growth'

(First of two parts)

NEW YORK CITY—“Finally, this will be a strong year for growth,” says Cushman & Wakefield's Ken McCarthy. In a podcast forecasting the economic outlook overall as well as the state of the office and industrial markets, McCarthy says the US economy is poised for “the best year in a decade in 2015, as a combination of strong business investment, rising employment, rising income leading to rising consumer spending all combine to push GDP growth up toward 3.5% to 4%, the best year since 2005.”

The growth will be driven by two main factors, says McCarthy, senior managing director and chief economist with C&W. The first will be “a shift in business attitudes from caution to aggressiveness.”

Businesses are expected to increase their hiring this year; “in fact, they already have,” he says. In the second half of 2014, there was “a significant pickup” in the pace of hiring, leading to the strongest year of employment growth since 1999.

As hiring increases, it will begin tightening up labor markets “and that will lead to higher wages,” says McCarthy. “Higher wages and/or jobs combined will lead to stronger growth in household incomes, and as household incomes begin to rise—finally, after several years of stagnation—what we will see is a significant pickup in consumer spending. Consumers represent roughly two-thirds of overall economic activity, so as consumer spending begins to accelerate, that will drive the economy into this higher growth trajectory that we see for 2015.”

Another important contributor, he says, is likely to be the housing sector. Although the rising trend has been erratic throughout the recovery—a trajectory of fits and starts that's likely to continue through this year—it nonetheless will continue to move upwrd.And as housing rises, “it will carry along several other industries as well, including furniture, appliances, financial services, etc.”

In terms of industries, McCarthy notes that the technology sector “remains extremely healthy and continues to grow.” On the other hand, the energy sector, which has been an important driver, is likely to slow down, due to the decline in oil prices.

However, he says, “we don't think that will be a significant impediment to growth. In fact, lower oil prices on balance are a positive for the US economy, because they act essentially as tax cut for the American consumer. When consumers are able to spend less on gas and heating oil, that frees up income that can be spent on other things. We estimate that the roughly $60 decline in the price of oil since mid-2014 will add some $180 billion in consumer spending to the US economy during 2015, as long as it is sustained.”

McCarthy notes some other potential headwinds, notably uncertainty in the global environment. “There's been an increase in volatility in global financial markets early in 2015,” he says, although he adds that C&W isn't predicting a major impact on the US as a result.

The other uncertainty, of course, is interest rates, which McCarthy expects to increase,  “probably sometime around mid-year.” How that is transmitted and how the market reacts “will go a long way toward determining how fast interest rates rise at all levels.”

Although it could have an impact on growth in the year's second half, “it's probably going to be modest,” says McCarthy. He adds that “it's important to keep in mind that the Federal Reserve is only raising interest rates because the economy is strong. If the economy slows down for any reason, the Fed is not going to change their policy.”

Tomorrow: the outlook for office and industrial