Despite the sluggish employment activity, consumers remain fairly optimistic and have managed to trim down their outstanding credit card balances over the past couple of years. As a result, retail sales are not expected to be too bad in 2014.
“Core retail sales are expected to grow 3.8 percent by the time 2013 figures are finalized, and by 4.5 percent in 2014,” says Hoyt.
That’s a pretty good showing, given that average annual core retail sales grew at 4.6 percent prior to the 2008 financial crisis. (Core retail sales exclude volatile revenues from auto sales and gas stations.) This should contribute to a stronger business environment in 2014.
Housing Health
The economy should be assisted by the continued improvement of the housing market. “Foreclosures are working their way through the process and fewer homes are entering foreclosure,” says Koropeckyj. House price indexes are firming throughout the country. Indeed, they increased by 9.4 percent in 2013, up dramatically from the 2.8 percent increase of the previous year. That figure is expected to be 6.1 percent in 2014.
The median home sales price increased to $198,000 in 2013, up sharply from the $176,000 figure of the year before. In 2014, that is expected to be $202,000. All these figures can only bode well for all businesses — especially one like custom integration that’s so tied to the housing market — as consumers have more money to spend.
Related: Read More about the 2014 Outlook in CI’s State of the Industry
“Looking forward, a major driver of faster growth will be improvement in the housing market,” says Hoyt. “It seems clear that we have worked off the excess housing inventory that was put in place during the bubble. Demand for housing is now outpacing supply. In 2013 that demand manifested in rising prices. As we move forward we expect continuing demand to lead to increased construction, and that can be a major source of jobs and income.”
Housing seemed to experience an improvement around the middle of 2013. “Especially in the Northeast, which seems to be cooking, there are good prices and houses do not stay on the market long,” Walter Simson, principal of Chatham, N.J.-based Ventor Consulting. “People recognize that low mortgage rates will not be here forever. They see a 4 percent deal and realize it is a once-in-a-lifetime opportunity. So they are saying ‘let’s do it now.'”
“Other parts of country are more mixed,” Simson continues. “Much of the Midwest never had a housing boom, so there are only pockets of overbuilding where condos are staying on the market longer. That will be cleaned up over the next year or so.”
Corporate Uptick
Small business owners are looking for relief from one major source: a rebound in hiring and investment by large corporate employers. The good news here is that corporations are expected to rack up some robust revenues in 2014, adding much-needed heft to the economic environment. While corporate profits dipped to 3.4 percent in 2013, compared with 7 percent the previous year, the decline is expected to be temporary.
“Corporate profits are down from 2012 due to weaker gains in manufacturing, financial services and mining,” says Koropeckyj. However, as those factors are overcome corporate profits are expected to rebound to 7.3 percent in 2014. (To clarify, these corporate profit percentages are nominal, not percentage increases.)
Robust sales and profits mean that corporations will continue their habit of bulking up their balance sheets with accumulated cash. That can only be good news when they finally decide to spend their money on expansion, equipment, and bigger labor pools.
“An increase in business investment is one of the main drivers behind our forecast for a pickup in GDP growth in 2014,” says Koropeckyj. “After expanding 2.8 percent in 2013, real fixed nonresidential investment is forecast to grow nearly twice as fast (4.5 percent) in 2014. The outlook reflects our view that stronger domestic demand and less uncertainty will encourage businesses to deploy the substantial financial reserves they have built over the past several years.”
