For the past two years, real final sales have averaged 2.2 percent, and we expect a repeat of a similar number in
2014. Consumer spending accelerated in 2013 over 2012, and we expect similar growth this year. Employment gains are expected to average above 220,000 this year and have risen each year since 2011. Housing starts have risen each year since 2011. The focus on quarter-to-quarter volatility in GDP noise obscures the gains in the economic signal.
Meanwhile, inflation, measured both by the PCE deflator and the CPI index, has increased since the fourth quarter of 2013, and both are expected to hit 2 percent year-over-year gains by the end of this year. Consistent with the rise in inflation has been a rise in the yield on two-year Treasury notes as markets are discounting the approach of the Fed decision to raise the funds rate. Our view remains that the Fed will announce a change at the June 2015 meeting—in contrast to the volatility of views by others. Finally, we expect pre-tax profit growth to continue its typical pattern of slower growth as we move further into the expansion.
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