Easton economic symposium delves into global, world economy
EASTON— The U.S. is in a consumer economy, according to two economists Tuesday morning, Oct. 25, at the 2016 Economic Symposium in Easton.
Hosted by the Talbot County Chamber of Commerce at the Tidewater Inn, and sponsored this year by M&T Bank and Tri Gas & Oil, the economic symposium is a yearly event where economists Gary Keith and Anirban Basu give their opinions on the current trends in the U.S. and global economies, why the trends are happening and what that means for the future.
Keith, vice president of commercial planning and analysis with M&T Bank, started the conversation with a macro look at the economy.
In the eighth year of the recovery after the Great Recession, global economic recovery has been “too slow for too long,” Keith said.
Experts have repeatedly marked down expectations on the economic growth rate, he said. The problem is there’s not enough demand, and that’s coupled with too much uncertainty in economic policy — higher than before the recession, he said.
“We can’t hold this in our hands, we can’t point to it as something that is physical, but the uncertainty that is in our economic policy both here in the U.S. and in our major trading partners does hold back the economy,” Keith said.
“These kind of uncertainties have an effect in terms of decision making ... the concept that everyone is worried about the future, everyone is concerned, is something that we’re seeing rising and I think it’s something that we really have to watch for in terms of driving psychology to the point where we get some self fulfilling aspects of what’s happening in the economy,” he said.
Globally, gross domestic product (GDP) growth has slowed, from a 5.3 percent average between 2004 and 2007 to a 3.3 percent average from 2012 to 2018, according to Keith. The U.S.’s average GDP growth over the past six years has been 2.2 percent.
The drag is because a quarter of the economy is focused on exports and nonresidential fixed investments.
“If there’s not enough demand in that sector of the economy, that spills into investment and capital goods where there is just not enough need to invest in new equipment, new expansion activities,” Keith said.
But one positive sign is that 70 percent of the U.S. economy is consumption and consumer spending, he said. On top of that, job growth continues to rise, median incomes continue to rise, and more people are participating in the job market, Keith said.
Keith said he is optimistic that consumers will play a part to boost the economy, pointing to several other factors, including a growing millennial generation, which is entering its prime spending years and will participate in consumerism much more than Baby Boomers, who are leaving their prime spending years.
“The consumer is what’s going to carry us forward through 2017,” Keith said.
But uncertainty can still loom over the economy. Even the presidential election has economic implications, Keith said. He said that according to a Harvard Business School study looking outside the world of basic economic influences, like supply and demand, the United State’s political system and polarization is the biggest issue with the economy.
An M&T Bank survey asked its customers how the possible outcome of the election factors into their companies’ business plans over the next year. According to the survey, 34 percent said the possible outcome was a negative factor and 19 percent said it was a positive factor, while 46 percent said the election was not a factor at all.
“The economy really needs us to be able to step up and make decisions,” he said to the crowd Tuesday. “Let’s take that chance and I think I encourage all of you, make good solid decisions, make things from not a fear position, but from a good, reasoned wealth analysis position.”
“All of us, I think, will benefit in the long run if we don’t give into the worries, the fears, the trepidation that seems to be the cottage industry these days,” Keith said.
Basu, chairman and CEO of Sage Policy Group, after speaking about his own views of the global economy, dived into some micro views and numbers on the U.S. and Maryland’s economy.
Basu said the world’s economy has been disappointing, because of the expectations set for how it would grow following the recession. Major countries across the globe have reduced levels of economic growth, oil prices and the demand for oil are falling, which is bad for the producers, and shipping prices are falling.
People can prepare for slow economic growth, he said. But when one’s expectations are high and investments are made as such, it’s farther to fall.
Basu also expects the global economy to remain weak for the foreseeable future.
But he also said Americans can take solace in knowing that the U.S. economy is performing, mainly, like Keith’s point, because of American consumers.
Basu said U.S. GDP in recent quarters is growing closer to 1 percent, rather than the generally accepted 2 percent mark for economic recovery, but it is growth nonetheless.
“You’ll find a lot of Americans who will make the claim that America is still in recession. That’s a popular perception,” Basu said. “We’re not, at least the way the economy is measured.”
“If it were (in a recession), how do you explain the fact that it’s so hard to find good workers in this economy? Do you know that Americans ... have in fact never had more job openings than it does right now?” Basu said. “Not that the economy is booming, you just can’t fill those opening jobs because we don’t have a sufficiently skilled workforce ... That’s one of the reasons why wages are rising so quickly.”
But Maryland is doing “just fine,” he said. The state has added 46,200 jobs over the past year, or equal to 1.7 percent in job growth, he said.
A big chunk of Maryland’s workforce are hired either by the federal or state government, Basu said, and those jobs are not seeing wage increases, which is one reason why the state’s economy is dragging.
“It reminds us, of course, another reason why we need to diversify this state’s economy. We are still too dependent upon the public sector,” Basu said. “If you’re so dependent on the federal dollar ... in a nation that has a $19.7 trillion national debt, you’ve got an issue.”
Talbot County’s unemployment rate is down to 4 percent, much lower than the nearly 10 percent it was just a few years ago, Basu said. Part of that is because Maryland and Delaware are creating jobs, he said.
Talbot’s housing market is also improving. Home sales are up to 24.5 percent, but average prices and median sale prices are down, although that’s not too bad economically, he said. First-time homebuyers are coming back, and they tend to buy less expensive homes, Basu said.
“When I came here last year, the inventory of unsold homes in Talbot County was 14 months. Now, nine months,” Basu said. “It’s still the highest level in Maryland — it’s true. The state wide average is four months.”
“The housing market is getting better. More people are participating, more people are working. That’s how our recovery should be working,” he said.
Basu does not see a boom in business investment in the near-term future, nor does he see a surge in exports or an uptick in government spending. He expects a consumer-led economic recovery to continue, but some things worry him about that.
Retail sales are down, due to a high amount of internet sales through companies like Amazon. Also, regional economic indicators have been choppy lately, which is mainly why Basu forecasts “really slow growth for 2017.”
Basu said he sees corporate profit margins slipping and inflationary prices building. While the stock market is going well, one of Basu’s fears, he said, is that assets have been bought up, and “everyone around the world is chasing for yields on their investments, and that causes people to move from safer assets to riskier ones, often in search for that yield.”
Basu said that, while the economy is moving from mid-cycle recovery to late-cycle recovery, inflation and interest rates could rise, and asset prices could reduce.
Anirban Basu, chairman and CEO of Sage Policy Group, speaks about a more micro view of the economy at the Economic Symposium in Easton on Tuesday, Oct. 25.
Gary Keith, vice president of commercial planning and analysis with M&T Bank, speaks to a large group of people at the Economic Symposium in Easton on Tuesday, Oct. 25.