A cheery economic forecast . . . with caveats

The forecasts are in and I am not alone in believing the U.S. economy will grow strongly in 2015. Expectations are that job gains will be robust, wages will start rising, and annualized economic growth will exceed 3 percent for the first time in a decade.

But being an economist means that when things are looking up, you worry about what could go wrong.

First, let me say I don't forecast the weather or wars. Yes, I failed to predict the worst winter in decades, and thus my 2014 outlook was off. My bad. And that could happen again. But we could just as easily have a warmer-than-usual winter. So, if you know what kind of winter it will be, tell me - so we both know.

As for wars, clearly, there are real risks. Russia's President Vladimir Putin has backed himself into an economic corner and the Russian economy could go into a steep recession. But will he start a major war? You got me.

That doesn't mean geopolitical risks aren't real, especially in eastern Europe and the Middle East, but basing a forecast on them is foolhardy.

So let's focus on the economic issues, and for me, Worry No. 1 is energy. The standard view is that prices will remain low for an extended period. But I am not so sure. The outlook for energy costs tends to follow the price trend. When prices are rising, everyone expects them to keep rising. Now that they are falling, the view is that they will keep going down. They may do that, but it is unclear when or at what price they will hit bottom.

Businesses hate uncertainty, and while it is great for the U.S. economy that energy prices have crashed, it is also hard to plan for what they will look like in the year ahead. Did anyone see $50 a barrel of oil coming this year? I doubt it. So, the risk is that oil prices will rebound. Still, they likely will be relatively low compared with the $100-per-barrel average during much of 2014.

On the international front, concerns about Europe and China stand out. Forecasts for growth on the continent are in the 1 percent range, which is pretty weak. That implies limited demand for U.S. goods. Meanwhile, we should buy a lot more from Europe. A widening trade gap would slow growth.

That said, I am less pessimistic than others about the Eurozone. Declining energy costs could increase consumer spending significantly, easing the threat of deflation and pushing up growth. Nevertheless, Europe's economy remains a question mark, and given its importance as a trading partner, it is a major worry.

China's growth is expected to slow, but I am concerned it could be weaker than projected. It is hard to know exactly what is happening in the Chinese economy. If you don't think the U.S. economic data are good, imagine how bad they are in a country that is so large as China, and has a limited history of data collection.

Does anyone really believe the Chinese economic numbers? I don't.

And if China's economy underperforms, what does that mean for the country's financial sector? Does anyone think a central government with limited experience in world financial management can perform the kind of magical control that the Chinese central bank has seemingly achieved? A major problem with the Chinese economy and/or its financial system could affect U.S. growth.

If energy and world growth issues were not enough, there are major uncertainties about interest rates. If the economy matches expectations, the Federal Reserve will start the process of moving rates back to more normal levels. Very simply, low interest rates are not signs of economic strength. But the economy is in good shape, so rate hikes are in our future, and they may come sooner than expected.

The timing and speed of interest-rate increases are unclear. While the Fed may move carefully, markets march to their own drummer. Longer-term rates, which are also way below normal levels, could spike in a manner similar to mid-2013, when rates jumped more than 1 percentage point in just a few months. That could throw everything into a tizzy, including the equity markets. The housing sector, which has already been lagging, could slow further.

Harry Truman longed for a one-armed economist because his advisers kept saying " . . . on the one hand, but on the other hand . . ." In that spirit, while I am very hopeful about 2015, I recognize that surprises are inevitable.

Let's hope they aid, not hinder, growth.