Eas­ton eco­nomic sym­po­sium delves into global, world econ­omy

The Star Democrat - - FRONT PAGE - By JOSH BOLLINGER jbollinger@star­dem.com

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.

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