Bank economists expect business and housing investment to spur stronger economic growth over the next two years.
The Economic Advisory Committee of the American Bankers Association said Friday that after a weak start to the year, the economy will produce about 3 percent growth for the remainder of this year and into 2015.
“As these temporary factors fade, the underlying health of the economy will show through, with business spending and hiring leading the charge.”
The committee, which includes 14 chief economists from the largest banks in North America, expects moderate consumer spending growth until wage growth accelerates.
"Households are benefiting from a material rise in home and equity prices, but remain constrained by weak wage growth,” Low said.
"A more meaningful pickup in consumption will be elusive without stronger wage growth.”
The bank economists forecast that home prices will rise solidly and residential investment will increase 10 percent for the remainder of the year.
Improving labor market activity should help generate much-needed household formation that will further bolster the housing recovery.
“We foresee enough growth in jobs and income to keep housing strong even as mortgage rates rise,” Low said.
In a separate interview, Rob Dietz, vice president for tax and market analysis at the National Association of Home Builders, said that while the sector is headed in the right direction there is plenty of room to grow.
The sector represents about 15.5 percent of economic growth but usually runs about 17-18 percent under normal conditions.
Housing, which experienced 1.5 million job losses in residential construction during the peak of the downturn, is bouncing back, Dietz said.
In the past 12 months, the sector has added 100,000 jobs and there are more to come after a tepid first quarter.
Meanwhile, the industry is waiting for a step up in single-family construction, which is expected to increase 13 percent this year over 2013’s figures.
On top of that, housing starts are expected to exceed 1 million this year, an important mental milestone for the sector but still below the 1.6 million in a normal market, Dietz said.
With sustained job growth, the unemployment rate will continue its downward trend, according to the bank economists.
The group sees unemployment falling to 6.1 percent by the end of the year and close to a full-employment level of 5.6 percent by the end of next year.
"Job growth will average gains of over 200,000 per month for the remainder of the year," Low said. “Today's jobs report, indicating 217,000 jobs created in May, reaffirms our outlook for the jobs market.”
The committee forecasts inflation to speed up near the Federal Reserve’s target levels by the end of 2015.
The bank economists believe the Federal Reserve will keep policy rates unchanged until mid-2015.
The group expects the Fed to finish tapering its asset purchases later this year.
Meanwhile, they expect banks to modestly increase lending to consumers this year, even as banks face increased regulatory restraints and cautious consumers who are selective about taking on more debt.
If April's Federal Reserve report on Friday is any indication, consumers are willing to bank more credit card debt and banks are showing a willingness to increase lending.
This year, loans to individuals are expected to grow about 4.5 percent and loans to businesses will grow 9 percent.
"We’re optimistic that business lending will grow at a near double-digit rate over the next couple of years,” Low said.
Despite recent declines in the federal deficit, the bank economists find the current federal debt levels concerning.
The group forecasts the federal deficit falling to $490 billion in fiscal year 2014 and $470 billion in fiscal 2015.
“Despite near-term improvements in deficit levels, we remain concerned about the prospects of larger looming deficits in the long run,” Low said.