The U.S. Economy Is the World’s Growth Engine Again

The eurozone is slipping back into a recession. China’s economy is growing more slowly than it has in decades, sliding toward a pace of just 7%. And the stock market has the jitters. But the U.S. engine is picking up steam.

There’s no reason to fear that U.S. economic growth will stall out, despite slowing in some major trade partners. The impact of more sluggish Chinese gains and recession in Europe will be negligible.

The fact is, the U.S economy is healthy, and getting healthier. It’s headed toward growth topping 3% this quarter and higher year-over-year growth in 2015: 3% or better, compared with a tad over 2% for 2014.

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It’s consumers that will fuel the gains. Strong growth in real wages and income is the key, providing consumers with the wherewithal to spend. 240,000 net new jobs a month on average in 2015 mean more folks will be earning paychecks, even though hourly wages are climbing only slowly. What’s more, there’s some pent-up demand. So far in 2014, after adjusting for inflation, total wage and salary income has been rising about twice as fast as real consumer spending, indicating a hefty backlog. Let loose by greater confidence in the economy, that backlog will help raise consumer spending, which accounts for two-thirds of all U.S. economic activity. All told, we expect a bump of about $327 billion to GDP, adding at least 2% to output for the year.

Meanwhile, look for joblessness to slide toward 5.5% by the end of 2015. That’s nearing what is historically considered full employment — just enough slack to accommodate normal job churn and not trigger uncomfortably high wage inflation.

Inflation in 2015 won’t be much of a worry at all, in fact, and will be under 2% again. And lower gasoline prices are a boon. For every sustained 10-cent-a-gallon drop at the pump, consumers typically spend an additional $11 billion a year on other stuff.

Business spending, accounting for roughly 16% of GDP, will climb, too. Spurred by bargain energy prices and increased consumer demand, corporations will invest about 7% more in plant and equipment, adding an extra $102 billion to 2015 GDP.

But don’t count on much of a boost from government, especially Uncle Sam. Though the pressure to cut deficits has eased, the share of economic activity generated by local, state and federal agencies — a bit over 18% — won’t deliver much extra juice.

And there will be only a modest hike in exports, about $50 billion, after adjusting for inflation. The struggling eurozone economies and stronger dollar spell restrained global demand. Imports, however, are likely to climb by twice as much, as U.S. consumers step up spending not only on domestic goods but on those that are made overseas, too. So trade, as a whole, will subtract a bit more from GDP in 2015 than in 2014.