The economy: What's ahead in 2014

  @Money December 10, 2013: 11:03 AM ET
economy outlook
NEW YORK (Money Magazine)

After five frustrating years, the economy is ready to bust out. Stocks already had a banner run in anticipation of the rebound, housing is scorching, and jobs won't be far behind.

There are plenty of moves you can make with your money to play to these strengths, even if the economy pulls some punches.

In Money magazine's Make More in 2014, you'll learn how to play to the economy's strengths while making the necessary adjustments to navigate the stock and bond markets at a time of lofty valuations, the real estate market at a time of rising borrowing costs, and the job market at a time of new opportunities.

The outlook

There comes a point in every feel-good story when the protagonist, after being beaten down or put upon for years, finally musters the strength to get up off the floor and face the challenges at hand. At long last, that's where the economy finds itself today.

No one is predicting herculean growth in 2014. The consensus among forecasters surveyed by the National Association for Business Economics is that U.S. gross domestic product will actually expand a bit slower than the average rate of growth since 1930.

Yet for an economy that has performed slightly worse than expected in 2013 -- and that has faced one calamity after another since the global financial panic -- next year should mark the first time since the housing market's collapse that growth reaches the 3% mark, which has historically served as the dividing line between strength and weakness.

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Plus, "the underlying fundamentals in the U.S. economy are stronger than the numbers would suggest," says Tim Hopper, chief economist for the investment manager TIAA-CREF. For instance, as housing roars back to life, consumer spending and job creation should also see a boost.

Related: Best new ways to make money

For instance, as housing roars back to life, consumer spending and job creation should also see a boost. To see how -- and for other positive signs -- consider the following.

1. Europe is coming back

The continent's economy is expected to expand about 1% next year. That's not exactly sizzling, but corporate profits there are recovering much faster.

Past 10 years
GDP: 0.9%
Earnings: 8.1%

Past 3 years
GDP: 0.2%
Earnings: 3.1%

Next 3-5 years
GDP: 1.4%
Earnings: 10.1%
Sources: Bloomberg, Eurostat

2. Housing is back

Each new home that's built creates about three new jobs, and new construction is expected to exceed 1 million units for the first time since the crisis. (See table below.)

3. Policymakers will back off

The Fed stated it will start raising rates only after unemployment falls to 6.5%. Even if job creation picks up, that could take over a year.

When will unemployment hit 6.5%?
If the monthly rate of job creation is....
300,000: 1st quarter 2014
250,000: 4th quarter 2014
200,000: 3rd quarter 2015
150,000: 1st quarter 2018
Notes: For unemployment rate calculation, labor force participation is assumed to grow from 63.6% to 64.2% by 2014. CBO projections are used thereafter. Source: The Hamilton Project

Make More in 2014

Stocks: Where to make money in 2014
Bonds: Tweak your mix in 2014
Real estate: Look for value in 2014
Jobs: Boost your career in 2014
How 2013 shaped up To top of page

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Housing and job creation
Annual Job Creation Housing Starts
2014* 2,367,000 1,160,000
2013* 2,269,500 950,000
2012 2,193,000 781,000
2011 2,103,000 609,000
2010 1,022,000 587,000
2009 -5,052,000 554,000
2008 -3,617,000 906,000
2007 1,115,000 1,360,000
2006 2,071,000 1,800,000
2005 2,484,000 2,070,000
2004 2,019,000 1,960,000
Note: 2013 and 2014 figures are estimates. Sources: Bureau of Labor Statistics, Census Bureau, National Association for Business Economics
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