5. The energy boom continues: The U.S. energy production boom began in 2005-2006. As of 2014, U.S. crude oil production and natural gas production were 40 percent higher than those levels. Our estimates are that this energy boom has been assisting the U.S. economy to the tune of 0.5 percent real GDP growth per year in the post-financial crisis period, and that this energy growth dividend will continue for three to seven years into the future.
We have seen increased oil production lower crude oil imports. And increased natural gas production has been displacing coal as fuel for electrical power, resulting in a doubling of coal exports since 2006. It is easy to ignore something that happens slowly over time, but the U.S. energy revolution is real.
An optimistic view for 2014: In December 2012, markets were justifiably worried the U.S. might go off the fiscal cliff, that Europe might implode and that China might face a hard landing. In fact, the U.S. did not go off the cliff, and the budget deficit is on the way to an operating balance by fiscal year 2015. Europe has stabilized, even if stronger economic growth remains out of reach for now. China has had a smooth transition to new leadership, achieved a soft landing and is poised to implement meaningful market reforms
The removal of these drags on economic growth, a sense that the necessary and multiyear financial rebalancing after the disaster of 2008 has been largely accomplished, the fact the federal government is on the road to fiscal stability, the more positive messaging from the Fed and the energy revolution in the U.S. all point toward a strong year of economic growth. For the record, our projections are for 3.5 percent growth in U.S. real GDP in 2014, for the unemployment rate to drop to around 6.0 percent by year-end and for core inflation to remain below 2 percent year-on-year growth. Not a bad year, if it can be achieved.