The national economy this year will continue to improve, following the slight upward trend of the 2014 economy, according to a certified financial planner with UMB Financial Corp.
Business owners remain optimistic and will spend more money and hire more people this year, predicted KC Mathews.
Mathews, executive vice president and chief investment officer at UMB Financial, gave his 2015 economic outlook before a crowded room of rapt investors, financial advisors and business owners at the Garden of the Gods Club last week.
A record number of Americans, 5 to 10 million, faced foreclosure in the 2000s. Because bankruptcy is expunged from a borrower’s record seven years after filing, millions of people will have access to credit in 2015, Mathews said. A large number of people will return to banks to borrow money for housing this year, Mathews predicted.
In 2007, loan demand grew just under 10 percent and dried up during the recession, Mathews said. Last year, the loan demand grew 8 percent, so, “in other words, consumers and businesses are willing to borrow and consume again,” he said, adding the stronger economy has given banks more confidence to lend money.
“Banks and credit are the lifeblood of the economy,” Mathews said, citing year-to-year bank loan growth figures. In 2007, banks grew their loans 9.8 percent from 2006, but in 2009, that figure dropped by 3.4 percent. Last year banks grew their loans by 8.8 percent over the previous year.
Last year, 1 million new homes were built, he said, predicting a 20 percent growth this year to 1.2 million new homes being built in the country.
Consumer confidence “continues to escalate,” Mathews said. “When you feel good, you go out and spend money.”
Mathews compared confidence levels with the Gross Domestic Product, that value of goods and services provided over the period of a year. The GDP represents the health of the economy.
Mathews compared confidence levels with the GDP:
• 1983, consumer confidence level of 93.3, GDP growth of 5.8 percent;
• 1994, consumer confidence level of 91.5, GDP growth of 4.2 percent;
• 2003, consumer confidence level of 93.7, GDP growth of 3.2 percent; and
• 2015, he predicted a consumer confidence level of 95 and a GDP growth between 2.7 and 3.1 percent.
On a related scale, the National Federation of Independent Business conducted roundtable interviews with business leaders last year. During the field research, the CEOs were asked about their willingness to spend more in the coming years, their profits and their confidence about 2015. The results showed business leaders were “very optimistic” about this year.
In the optimism scale, the NFIB found small-business optimism measured at 88 in 2012, 93.9 in 2013, 98.1 in 2014, and Mathews predicted a small-business optimism rating for this year at 102. The optimism rating figures are on a NFIB-devised scale and do not represent percentages.
Lower gas prices also create more confidence, he added.
“When oil prices go down, there’s a high propensity to spend,” and the top two areas of spending are alcohol and household improvements, Mathews said.
Crude oil prices decreased from over $100 a barrel in June 2014 to $49 per barrel in January, he said. He cited 2008 as another point in history when oil prices declined sharply: In July, the price per barrel reached $148, compared to $32 per barrel in December.
Some 10 million people were unemployed in 2014, Mathews said, roughly double the number of job openings — 4.8 million. Mathews shared the demographics of people not working in America; of people age 15-35, 35 percent are not working, and of young adults aged 25-35, 25 percent are not working, due to unemployment or staying in college.
“We feel confident that as the economy improves, this generation will have an easier time securing work, creating households of their own and creating housing demand,” Mathews said.
This year, the national unemployment rate will decline to 5.6 percent of the population, down from 10 percent in 2009, he predicted. Monthly, the number of jobs created averaged 173,000 in 2011, 186,000 in 2012, 194,000 in 2013, 246,000 last year and will reach 250,000 this year.
One of the best ways to predict job growth is the availability of credit; banks’ willingness to lend and payroll growth are correlated by as much as 85 percent, he said.