Economy Will Bounce Back in 2015 if Uncle Sam Doesn't Muck Things Up

Although many manufacturers won't even know how successful their year has been until after the Christmas shopping season ends, some economic forecasters are already moving on from 2014 and have set their sights on projecting what kind of a year 2015 will be. According to a recent study conducted by consulting firm Deloitte, the new year should also be a happy one, as 88% of the senior executives polled believe the U.S. economy will grow in 2015. Only 4% of respondents fear a recession.

Much of that growth will be powered by an increase in corporate capital investments. Another major driver of economic growth will be the manufacturing sector, which should increase in strength in 2015 (see chart).

The biggest global challenge to U.S. prosperity, respondents say, will be turmoil in the Middle East, followed by China's economy, and fears of stagnation in Europe.

"Shocks from outside the U.S. and internal fiscal policy mistakes are likely the biggest challenges to continued U.S. economic improvements in 2015," says Ira Kalish, chief global economist with Deloitte Consulting. "Unless the situation in the Middle East worsens considerably, I don't expect it to be as big a challenge as stagnation in China or Europe would be in the new year." From Kalish's perspective, a more relevant issue for 2015 will be how the Federal Reserve balances concerns about inflation with concerns about employment. Eighteen percent of respondents believe the Fed will tighten monetary policy appropriately, 21% think the Fed will tighten too soon, and 37% say the Fed will tighten too late (and 24% don't know). In a separate survey conducted by Deloitte of 100 CFOs at large companies, respondents weren't nearly as optimistic about capital investments. In fact, capital spending growth is forecast to increase year-over-year by only 3.5%, the lowest growth rate since Deloitte began the CFO survey in 2010. By way of comparison, forecasts for capital spending growth were in the 12% range from 2010-2012, but have dropped precipitously the past two years.

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"We may be seeing signs of a new, lower normal for capital spending levels," says Greg Dickinson, the Deloitte director who leads the North American CFO survey. "Some organizations may have developed excess capacity during the recovery, while others may now be less reliant on hard assets for growth -- and more reliant on digital technologies that scale relatively inexpensively. And we may be seeing some companies exchanging company-owned assets for outsourced services." The main culprit for damping the enthusiasm of CFOs is Uncle Sam, as 65% of the respondents say they expect moderate or high disruption from government regulation. In particular, CFOs are greatly concerned about government tax policy and reform efforts, according to the Deloitte survey.