Falling oil prices will be a boon to the domestic economy at
least through the first half of the year, but the price drop also means the
U.S. will flirt briefly with deflation, according to The Wall Street Journal’s
latest survey of economic forecasters. The roster of 66 economists—not all of
whom answered every question—is on average slightly more upbeat about the 2015
economy. Inflation-adjusted gross domestic product is forecast to grow 3%
across the four quarters of 2015, better than the 2.6% rate estimated for 2014.
Wages are expected to pick up as the labor market tightens.
The biggest economic lift will come from the prolonged drop
in oil prices that began in June. Almost all respondents said cheap oil will
lift GDP growth “slightly” or “considerably.” Fewer than 7% of economists
thought oil would have no impact or be a detriment.
Starting with this survey, the Journal has expanded the
number of economists surveyed to more than 70 from about 50 in previous years.
The survey will now capture more opinions from economists in academia and
nonfinancial firms. The larger roster is also more geographically diverse.
If gasoline prices stay near $2 a gallon for 2015, the
economy will see a net savings of $750 per household, or just over $90 billion
in savings across 124 million U.S. households, said Jim Miel of ACT Research.
Although the forecasters on average expect growth to hover
around 3% in each of this year’s four quarters, the lift from cheap oil is
expected to ebb later because most of oil’s decline has already occurred. The
economists on average see U.S. oil prices edging up over the course of the
year, ending 2015 at $63.03 per barrel. The U.S. benchmark has traded below $50
a barrel in recent days after falling from a peak of $107.26 last June.
Cheaper oil also means that inflation—as measured by the
consumer-price index—will turn into deflation temporarily, many economists say.
Deflation will be short-lived, however,
as oil prices head north and other prices in the core index—which excludes food
and energy—continue to increase, said Tom Porcelli of RBC Capital Markets.
Stronger economic growth will tighten the U.S. labor market
further. The average forecast expects the jobless rate to hit 5.2% by December
from 5.6% in December 2014, and a sizable 15% of respondents expect the rate to
be below 5% by year’s end. Tighter labor markets should mean bigger pay raises
for most workers. The yearly growth in average hourly earnings slowed to 1.7%
in December 2014, but is projected to stand at 2.2% in June 2015 and 2.6% in
December, according to the survey. If so, 2015 would see the fastest wage
growth since 2008.
Although the economists generally are more upbeat about the
economic outlook and labor-market improvement, as a group they have not altered
much their expectations about the timing of the Federal Reserve’s policy shift.
When asked when the Fed will raise its policy rate, the most frequent answer
remains June 2015.
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