Savannah Chamber

12 6 contrast, capacity utilization for goods at the primary and semi-finished stages of production was only 77.4 percent, a rate 3.4 percentage points below its long-run average. International Trade In 2015, both real exports and imports are expected to grow almost twice as fast as U.S. GDP, reflecting the ongoing globalization of input and product markets. Since imports will rise faster than exports, the trade gap will widen. One reason why imports will grow strongly in 2015 will be faster growth of domestic consumer spending, which implies faster growth of imports of finished goods as well as more outbound American tourists. In 2015, U.S. export growth will be broadly based, and growth will be faster in emerging-market or commodity-based economies than in developed economies. Increases are expected for all of the major categories of goods and services. Export growth will be fastest for vehicles and parts and industrial materials and supplies, and slowest for foods, feeds, and beverages. Emerging-market countries in particular are expected to spend more on equipment and infrastructure. Industrial materials, foods, consumer goods, and inbound tourism will see more moderate gains. In 2015, we expect slight additional U.S. dollar appreciation, but that will not hurt exports too much because the dollar's value is still quite low, and some additional appreciation will not make exports tank. The current account deficit will equal about 2 percent of GDP, which is 0.6 percent lower than estimated for 2014. Inflation If oil prices remain relatively steady, consumer price inflation will increase by 2.2 percent, which is close to the Federal Reserve's target. Of course, inflation will be even lower if energy prices tumble, or if a recession occurs. Higher housing prices and rents and higher medical prices will drive the increase. There are no signs that inflation will soon be a problem, and the usual drivers of inflation will not be much more intense in 2015 than in 2014. Once economic growth gains momentum, the Federal Reserve will rescind some of its rate cuts. As long as rates are not kept too low for too long, the risk of stagflation is very low. Our forecast expects the Fed to keep rates on hold until mid-2015, and increase them only slightly thereafter. It does not appear that the employment situation has improved to the point where labor market conditions will support accelerating inflation. Heightened competition for jobs from both domestic and foreign workers also will help to keep the lid on wages and benefits by dampening workers' expectations even as consumer prices rise. In the 2015 economy, workers do not realistically expect employers to raise their wages to fully offset higher consumer prices. The outlook for inflation beyond 2015 is considerably less sanguine, however. Because inflation is a monetary phenomenon, the magnitude of recent monetary stimulus increases the risk of inflation. Also, the federal debt has skyrocketed in absolute terms as well as in terms of its percentage of GDP. That creates pressure to monetize the debt. Over the next decade, inflation may exceed the 3 percent averaged over the last 30 years. Also, despite the lack of a good substitute, the U.S. dollar could gradually lose some of its status as a reserve currency or safe haven. Of course, the mushrooming federal debt does not have to produce more inflation; it may instead simply force U.S. interest rates higher to attract the needed capital. Either way, outsized budget deficits can't be sustained without doing significant damage to the U.S. economy and its prospects for growth. Crude Oil Markets Without additional significant supply interruptions or additional price premiums due to increased political tensions, it is unlikely that oil prices will move too much in 2015. Prices will range between $90 and $115

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