DAVID GREENE, HOST:
This has been a year of punishing news, sometimes hard to take - war, Ebola, racial tension. So there is some amount of relief seeing the positive economic news as 2014 draws to a close. The latest government data says the U.S. economy grew at an impressive 5 percent rate in the third quarter. The best quarter in more than a decade. The stock market hit a record yesterday again. The unemployment rate has been below 6 percent for three months now. Let's talk about how cautious we might need to be with our optimism with David Wessel. He's director of the Hutchins Center at the Brookings Institution, a contributing correspondent for the Wall Street Journal and also a frequent guest on this program. David, welcome back to the program, hope you're well.
DAVID WESSEL, BYLINE: Good morning.
GREENE: So how excited can we be about this economic news we're seeing right now?
WESSEL: Well, it looks like a pretty good picture. After a lousy first quarter, the economy grew at a healthy pace in both the second and third quarters. The job market isn't completely back to normal, but we added 2.7 million jobs in the past year. There isn't much inflation. Oil prices are surprising us, falling, giving consumers more money to spend. The federal deficit is shrinking. Local state and federal governments have ended a long period of belt-tightening. The stock market is up more than 10 percent over the past year. So it is looking pretty good. But there are some clouds.
GREENE: OK.
WESSEL: Mortgage rates are low, housing isn't so good. Factories aren't seeing many orders and - but economists still expect the economy to grow about 3 percent in 2015. That's a bit faster than it did this year.
GREENE: Well, what is the key as we look to next year to really build on the momentum and get this economy really cranking up?
WESSEL: Well, I think domestically, it's whether the improvements we've seen so far can build confidence among consumers and businesses that lead them to spend more readily and at lead businesses to hire and invest more than they have been. We really need to avoid something like a congressional game of chicken over the budget or another threat of war because the private-sector economy really does seem poised for steady improvement, perhaps better than it did over the past year.
GREENE: And I guess it's not just what happens in this country, I mean, economic indicators around the world can also have a huge impact on the U.S. economy.
WESSEL: Absolutely. I mean, oil and gas prices are the biggest factor. If they stay at today's level, that's a huge plus. If they rise, it's a minus of course. But there's also a lot of worry about the health of the rest of the world - Europe, Japan, China's slowing, so is Brazil. And the possibility that we'll have some geopolitical tension - North Korea, Russian, Middle East. So I think the biggest risk to U.S. growth are outside the country. And this divergence of fortune between the U.S. and the rest of the world raises the risk of some unanticipated instability in financial markets. It could spill over to the rest of the world economy.
GREENE: I mean, as families are sitting down and celebrating the holidays, David, and going shopping and doing things like that, I mean, are American families beginning to feel better - you know, their budgets and sort of their pocketbooks - are they feeling a better economy right now?
WESSEL: Well, feeling is an interesting word. I mean, the measures of consumer confidence are improving that always happens when gas prices go down. I think the picture is this - the economy's been growing for five years now, factories are finally producing more than they did before the recession. A greater percentage of American adults are working than at any time in the past five years, but the incomes and wages of ordinary Americans are still sagging. A disproportionate share of the good news over the past five years has gone to the best off, the already wealthy - lawyers, doctors, executives, investment bankers. And the really big question for 2015 is whether the combination of a shrinking pool of jobless people or underemployed workers and the growing demand for labor will be enough to overcome all the pressures of globalization and technological change and finally produce rising wages for the middle class. That's really the big question and the big hope for 2015.
GREENE: All right, getting a picture of the economy as this year draws to a close with David Wessel. He's director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution and a contributing correspondent for the Wall Street Journal. David, thanks as always.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.