2016 promises slow, steady growth – and that’s OK
KENNESAW, Ga. (Feb 4, 2016) — Kennesaw State University economist Roger Tutterow, Ph.D., speaking at the Jan. 12 Synovus Economic Forecast at the Atlanta Athletic Club in Johns Creek said the United States is in its seventh year of economic expansion since the 2008 meltdown.
While it may not feel as robust as we might like it, a slow, steady 2 percent growth rate is not a bad place to be. The economic growth in the country is still “timid,” but the slower pace has its advantages over a more gaudy 3 percent or higher.
“The United States economy is robust and economic indicators such as car sales are encouraging. People feel it’s safe to buy cars again,” Tutterow said. “On the other hand, history tells us we are due a recession every 58 months on average in the post-World War II era.”
So it is fair to ask if the slower growth is postponing another economic correction. He says yes, since this “timid” recovery has been cautious and is not overheating.
After each recession since 1981-82 there has been a “super recovery” in the gross national product. It grew 4.8 percent a year in the 1980s. After the 1991 recession the recovery grew an average 3.1 percent for five years. After 2001, it was nearly 3 percent.
So far the 2.2 percent average growth has been somewhat frustrating. We’ve weathered the recession, why are we not reaping better, faster growth? Last year we saw the economy do a lateral sidestep. It was down in the first quarter due to a perfect storm of snowstorms in the Midwest and East that shut the economy down.
“You can continue to remove the snow from the roads all day off I-95, but what do you do when you run out of places to dump it?” Tutterow said.
Meanwhile, a horrendous disruption of the California ports over a labor strike had “ships circling in the Pacific like planes stacked over an airport” waiting to unload.
Nevertheless, the U.S. economy bounced back the next three quarters. This was due to a strong dollar – or at least the least-weakest currency, however you want to look at it, Tutterow said.
“The dollar is the least dirty shirt in the hamper,” he said.
And it was helped by a resurgence of manufacturing in the U.S. Asian manufacturing has seen its workers close the wage gap with American workers. Also, their energy costs are rising. American manufacturing is proving more energy efficient.
“That is important because energy costs are surpassing wage and salary costs,” Tutterow said. “While Asian wages are climbing, in America wages are moving laterally.”
The stronger dollar is great when you go to Paris to buy perfume, but the drawback is it makes American goods less competitive on the world market. So that tempers American manufacturing growth.
But employment is rising, and with it consumer spending. In November 2008 consumer confidence was at its lowest since 1980 and the so-called Reagan recession. But beginning in early 2014 and through 2015, consumer confidence has been in the 85 percent to 90 percent range, Tutterow said.
“Consumption spending is feeding the recovery,” he said.
Falling oil prices means fewer dollars spent at the pump. As much as $2,000 a year per car is freed up for discretionary spending elsewhere. How far can gas prices fall?
Tutterow says that depends on the Saudis. In the past when the price of oil dropped below a certain point, the Saudis cut back on production. This time they are letting the price go into free-fall.
With the rise of their big enemy, Iran, back off sanctions and the Russians getting frisky in the Middle East, the Saudis may be willing to pay the price to starve the economies of their rivals. It also makes it unattractive for the U.S. to invest in oil alternatives such as shale and fracking for natural gas, Tutterow said.
“The Arabs are worried about new U.S. oil exploration,” he said. “Add to that geopolitics and the Saudis are using oil as a way to curb American exploration and extremism in their part of the world.”
Consumers have noticed it, and as new-car sales rise, so have those of light trucks now that owners don’t get sticker shock every time they fill up.
Looking at all the data, Tutterow sees another year of 2.5 percent growth. The dizzying growth in the energy states is quickly slowing. The enthusiasm for the Canadian pipeline is waning as energy costs fall.
“The oil boom is over for them,” he said.
The Atlanta market is getting stronger, jobs are on the rise. Tutterow says there are now 2.6 million workers in the Atlanta metropolitan statistical area. That is helping fuel new home construction.
“The biggest problem with home construction is the lack of supply for new lots,” he said.