Savannah Chamber

10 4 The large wealth losses that accompanied the recent recession not only crippled consumer spending but also dramatically reduced the amount of funds available to launch, or expand, small businesses. Personal wealth--not the credit markets--is the primary source of funding for new small businesses. Demographic trends, more business regulations, and the failure of many small community banks also are behind the extremely low levels of new business formation prevailing in the recession's wake. At this juncture, job creation--and the income growth that accompanies it--is absolutely vital to the outlook for both consumer spending and the overall economy. The forecast anticipates that the nation's job machine will remain in second gear in 2015, however. Job growth therefore will be adequate to boost U.S. GDP growth from 2 percent to 2.8 percent, but inadequate to raise the rate of GDP growth above its long-term average of 3.1 percent. Growth in both the number of jobs and the number of hours worked per job are two factors that will support this income growth. The proportion of high paying jobs created also is likely to rise slightly. In 2015, spending for durable goods will increase faster than spending for nondurable goods and services. Among durables, outlays for cars, computers, and sporting goods will increase very rapidly. Spending on nondurables such as pharmaceuticals and other medical products will rise briskly, but spending for food, clothing, and shoes will rise moderately. Among services, spending on vehicle leasing will increase the fastest. Providers of health care, food services, and insurance will see above average growth in spending. In contrast, consumers' outlays for utilities will grow relatively slowly. Labor Markets On an annual average basis, total nonfarm employment will increase by 1.8 percent in 2015, which is the same as the 1.8 percent gain estimated for 2014. Courtesy of the upturn in housing, job growth will be very broadly based. Companies will hire as domestic demand for goods and services expands. Global demand for American exports also will expand. Meanwhile, venture capital--which fuels job creation--will be more available. Also, the rate of job losses in the private sector will be quite low. In short, net job creation will be strong enough to slowly reduce the elevated unemployment rate, which will drop from 6.3 percent to 6 percent on an annual average basis. Once the unemployment rate moves below 6 percent, the buyer's market for workers will become a seller's market. That probably will occur late in 2015 or early in 2016. Unit labor costs will rise about 2 percent, which is about two-thirds the increase estimated for 2014. Output per hour and compensation per hour will rise by about 1.5 percent and 3 percent, respectively. Wages will rise by 2 percent and benefits by 3 percent. Health insurance costs will be the primary force behind benefit cost increases. One implication of the slow growth of wages and unit labor costs is that the Federal Reserve can afford to wait until the second half of 2015 before it begins to raise short- term interest rates. Although net hiring will expand, several factors will limit the gains. First, as discussed previously, below- average GDP growth limits the impetus to hire. Second, the U.S. economy has exhibited extreme volatility, which will make employers reluctant to hire more fulltime workers. Third, the outsourcing of American jobs to developing countries will continue to spread from blue-collar occupations to white-collar occupations. Fourth, uncertainties regarding federal fiscal, tax, and regulatory policies will restrain hiring. Fifth, the federal government will be downsizing its workforces permanently. Sixth, the Federal Reserve will begin to tighten monetary policy. Finally, some of the new jobs that businesses will need to create will not match the skill sets of the unemployed. In the coming year, construction companies will post the fastest rate of employment growth. Professional and business services will see the second fastest rate of job growth, followed by natural resources and mining, and transportation and warehousing. Education, health services, leisure and hospitality, and

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