An uncertain economy remains

Jan. 1, 2020
As in year’s past, the economic outlook is slow, shaky and uncertain, still quite contrary to what the years following previous economic drops have brought to the U.S.

CHICAGO — As in year’s past, the economic outlook is slow, shaky and uncertain, still quite contrary to what the years following previous economic drops have brought to the U.S.

Gary Schlossberg, senior economist with Wells Capital Management, notes that the U.S. economy has not seen the growth following the recession of 2008 and 2009 that is normal after low periods, though the economy is somewhat better now.

“We think it will continue to be a bumpy ride in the foreseeable future,” he told GAAS attendees. But he adds there are opportunities and areas of resilience, including the automotive sector when looked at in broad macro trends.

Schlossberg’s presentation, “The Global Economic and Financial Market Outlook in 2013 and Beyond: How Smooth a Transition from the Post-‘Meltdown’ Economy?” addressed more than the automotive sector, looking at the housing market, interest rates, job growth, inflation and more.

“Both here and overseas, we haven’t seen any burst of economic activity that’s typical after a deep recession, and this was a deep recession in 2008 and 2009,” he notes. When looking at past recessions in the 1970s and 1980s, there were growth rates of 8, 9 or 10 percent that followed, while today, anything above 3 percent is great.

Also, for the fourth straight year, we face another spring/summer growth slowdown in as many years both domestically and globally. It’s not seasonal, but it seems that something comes up each year that slows the economic growth down, Schlossberg states. While it’s not great, the U.S. still is doing a bit better than the rest of the world.

But How Great?
Schlossberg says we can expect the U.S. economy to go trough a period of modest growth this summer, and he hopes this year’s slowdown will be less than in past years, because job growth continues and is holding up. As a benchmark, Schlossberg shared graphics showing that generated jobs in the last three months at just more than 202,000, which is higher than the average.

A quick overview of some positives, “tailwinds” as Schlossberg referred to them, included strengthening job growth, housing market growth, “quantitative easing,” or housing and equity rebounding, and a release of “pent up” business demand as policy clarity improves.

There are many headwinds, too, including the high gas prices, shifting incomes and the payroll tax increase, the tax increase on upper income families and spending cuts are creating a headwind.

“We’re not talking a recession, but we think it will take some of the steam out of the growth we saw at the beginning of the year,” Schlossberg says.

With all of this, Schlossberg does not believe interest rates will continue to rise. That said, the financial markets are sensitive to economic growth. “For now at least, weak growth we think will keep those rates down,” but they will remain sensitive as we move into the second part of the year, he adds. “We’re not looking for a big run-up in interest rates, in part because of inflation.”

Another reason the U.S. has not seen a lot of inflation, is because there is a lot of excess capacity both here and overseas, there still are a lot of people unemployed, there was no wage spiral as seen in the 1960s and 1970s and there are loose links between The Federal Reserve and spending. Banks still are restrained in their lending, and it’s uneven. Overall, lending growth continues to be moderate, and “second, qualified borrowers are reluctant to borrow.”

What’s Next?
There are several hurdles to overcome before the economy will get back on track. There still is lingering fall-out from the 2008-09 meltdown, including a slow return from the “dash for cash.” There also are structural changes in overseas economies, for example the Euro situation and Greece’s economic struggles; policy uncertainties (health care, environment, public services and more); weak pricing power’s effect on hiring and wage increases; a labor market mismatch in the U.S. and abroad (i.e. a demand for skilled workers and a small pool); and finally, market vulnerability to rolling asset bubbles, risk on/risk off trading, according to Schlossberg.

But long-term, there are positives. The U.S. still is on the leading edge of growth, and as Schlossberg describes it, “we’re the least ugly kid on the block” when compared to other growth around the world.

Additionally, the U.S. has the ability to innovate and a good entrepreneurial spirit. A U.S. economic “rebalancing” already is underway. There also is a promise, and implications, of low-cost energy.  Finally, emerging market challenges and opportunities overseas will provide tremendous opportunities

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