"Never predict anything," said the late film impresario Samuel Goldwyn, "especially the future." But at this time of year, it is almost de rigueur for people like me who trade in opinions to offer some idea about what the New Year has in store for us.
Without question, the economy is picking up steam. In the third quarter, our Gross Domestic Product roared ahead at 4.1 percent, up from 2.5 percent the quarter before. The latest jobs report showed we added more than 200,000 jobs in November, bringing the unemployment rate down to 7 percent. The Dow is in record territory.
You don't need to be a Pollyanna to see sunshine in those numbers as you can see in the 465 point gain in the Dow Jones last week. Clearly, investors are optimistic about what they see out there. Whatever reservations people have about the Federal Reserve's policies, it has clearly had a positive impact on the markets and housing.
There is also good news in that the growth is being driven by rising industrial production - the combined output of manufacturing, utilities and mines - rose a seasonally adjusted 1.1 percent in November from the previous month, the biggest jump in a year. Now the index is above the pre-recession peak in December 2007, and 21 percent above the recession low we hit in June 2009.
Manufacturing remains below its pre-recession peak but still grew in November for the fourth straight month of gains, adding 27,000 jobs which put it back over 12 million. Overall factory output is up 2.9 percent from the year before. I speak with a diverse group of manufacturing executives and I am hearing a chorus of optimism. A growing number of manufacturers are bringing production back from overseas. They are all embracing advanced technology to achieve breakthroughs in productivity and quality. The amount of factory capacity in use jumped to a near six year high of 76.8 percent in November. The latest ISM report shows a robust manufacturing with much growth potential.
Energy also continues to be a positive in the economic picture. Natural gas prices have kicked up a bit due to seasonal demand, but remain low and will stay there indefinitely. Manufacturing is highly dependent on natural gas. In fact, some foreign manufacturers are building plants here to take advantage of our newly found abundance of natural gas. Even oil supply has picked up enough that gasoline prices are down. The Energy Department says domestic production of oil will increase by 800,000 barrels a day every year through 2016, nearly hitting the 1970 high of 9.6 million barrels a day.
Of course, there are always troubling signs. The unwinding of the Fed's easy money policy, though surely necessary, will inevitably lead to higher interest rates in 2014. The question is whether the Fed can taper quantitative easing in a way that interest rates do not rise too much too fast. Also, we have seen very little real progress on a meaningful fiscal policy. The budget deficit remains too high setting the stage for another showdown on the debt limit. In sum, even though the New Year looks promising, we still have mountains to climb.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. December 2013