Economic outlook uncertain
Phil Castle, The Business Times
Scott Anderson ranks among the top forecasting economists in the United States.
Faced with the uncertainty associated with a slow recovery in the U.S., a recession in Europe and an upcoming presidential election, though, even Anderson has difficulty discerning the future.
“I don’t know what’s going to happen in 2013,” Anderson acknowledged during a presentation in Grand Junction.
Anderson, a senior economist with Wells Fargo, detailed some encouraging trends he described as a glass half full. But concerns about the global economy and particularly Europe present the less upbeat perspective of a glass half empty, he added.
The Grand Valley should join in a more robust regional recovery as employment increases and the unemployment rate decreases, Anderson said. But weaker incomes could affect retail sales. More home sales and construction are forecast, but the housing market has yet to substantially rebound, he added.
Anderson said his job at Wells Fargo has afforded him a front row seat from which to watch unprecedented economic events over the past decade, including one of the worst recessions since the Great Depression and what’s been a slow U.S. recovery since then.
Anderson cited a number of what he called “positives” in the U.S. economy, including a broad-based expansion in the labor market and increases in consumer spending and confidence among small business owners.
Several leading indicators offer encouragement as well, Anderson said. Corporate profits have increased, and accumulated cash could help cushion a downturn.
Bank profits have increased as loan losses have receded and consumer lending has increased for car loans, student loans and credit cards, he said,
Nonetheless, the economic recovery hasn’t exactly been robust, he added. “We’re not going gangbusters.”
What’s more, the U.S. is already about half way through what’s been an average duration of economic expansions following World War II of 7.5 years.
Gross domestic product, the broad measure of goods and services produced in the country, is expected to grow at an annual rate of 2 percent for 2012. Still, there’s a chance growth could slow during the second half of the year, he said. “You still have to be careful. You still have to be cautious.”
Despite some job growth, the U.S. has yet to regain the millions of jobs lost during the recession, Anderson said. “There’s still a lot of idle labor out there.”
There’s also the prospect inflation could hamper the consumer spending that accounts for about 70 percent of all economic activity in the U.S., he said. Gasoline prices and rents have increased even as an ample labor supply has kept wages down.
The housing market continues to suffer what Anderson called a hangover in the aftermath of a housing bubble that burst. While sales have bottomed out and construction activity has increased, prices continue to decline. Historically low mortgage rates could bolster the housing market, but many buyers are investors snapping up bargains and paying with cash.
Even though the U.S. continues to fare comparatively well, sputtering growth elsewhere around the world could effect U.S. manufacturing and exports, Anderson said. As Europe faces recession, growth has slowed in such developing countries as Brazil, Indian and China. “I’m not real happy with what I’m seeing globally.”
Several other factors also cloud the economic outlook, Anderson said, including the implications of the upcoming presidential election for federal fiscal policy as well as the fate of large tax cuts scheduled to expire at the end of the year. Businesses face uncertainty until the Supreme Court rules on the constitutionality of health care reforms.
Government belt tightening could slow the economy. But at the same time, a credible plan is needed to address unsustainable increases in federal debt, he said.
Anderson also offered something of a mixed outlook for the Grand Valley in the portion of his presentation focusing on the local economy.
Anderson said he expects a stronger regional recovery this year.
Payroll gains in such industry sectors as professional and business services, leisure and hospitality and construction and mining should help to bring monthly unemployment rates below 8 percent.
Nonetheless, incomes haven’t yet recovered from the recession and could affect consumer spending and in turn retail sales, he said.
Activity in the Grand Junction housing market should continue to increase with more real estate sales and construction. But the market has yet to return to levels seen before the recession. “We’re still just bounding off the bottom,” he said.