Look for the U.S. economy to continue to improve this year. The economic fundamentals are solid, and all indications point to a healthy and improving economy in 2005. We can expect above-average growth in real output, more jobs, a falling unemployment rate and a continuation of the lowest inflation and interest rates since the 1960s.
The economy's outstanding performance in 2004 - one of the best years ever - points to an economy firmly positioned for a continuing and robust expansion.
Steady job gains were posted in each of the past 16 months, the strongest 16-month period of job growth in four years. With 132 million Americans now working, we are just shy of an all-time employment record and should break the record early this year.
From its peak of 6.3% in June 2003, the jobless rate has fallen or remained steady in 16 out of the past 18 months, and it dropped below 5.5% in late 2004 for the first time since late 2001. The current unemployment rate of 5.4% is well below the average jobless rate of the 1970s, 1980s and 1990s and well below the 9% average unemployment rate in Europe.
Personal income topped $10 trillion in 2004 for the first time and posted the largest annual gain - 8.6% - since 1982. Not only are more Americans working now than almost ever before, but their incomes are rising as well, and the "jobless recovery" is officially over.
Reflecting the strong job market and rising income, consumer confidence has been on an upward trend for the past two years and is currently close to a three-year high. The increasing confidence of American consumers showed up in several recent all-time records for consumer spending in 2004.
Retail sales went above $4 trillion in 2004 for the first time, as consumers hit the shopping malls in record numbers. Home sales surged in 2004 by 9.4%.
Real output expanded at a rate of 4.4% in 2004, the highest annual rate of economic expansion in five years. Only twice in the past 20 years has Gross Domestic Product increased faster, which was during the peak of the last expansion in 1997 and 1999, when output rose by 4.5%. The U.S. economy in 2004 performed a lot like the economy in the late 1990s at the height of the strongest and longest economic expansion in history.
Simply put, the fundamentals of the U.S. economy are that of an economy in full expansion, and there are very few clouds on the horizon that could slow down the strongest economy in the world in 2005.
What exactly can we look for in 2005?
According to the consensus of 56 professional forecasters recently surveyed by the Wall Street Journal, we can expect real GDP to grow by 3.6% in 2005 - above the 3% average of the past 25 years.
Further, experts predict continued improvements in the labor market, and the unemployment rate should be down to 5.1% by November.
The economy in 2004 was one of the strongest on record, and that provides a very solid foundation for a healthy economy this year. The expected growth in real output and employment in 2005 will make America the fastest-growing economy of any industrialized nation in the world, and our economy will be the envy of the rest of the world. Again . . . as usual.
Mark J. Perry is an economist at the University of Michigan-Flint.