By any measure, if you look at the period since the U.S. economic recovery began in mid-2009, words like lackluster, subpar and disappointing come to mind, says Jeffrey Korzenik, chief investment strategist at Fifth Third Bank.
That’s particularly true not just relative to long-term growth in the U.S., he says, but when considering the depth of the recession in the context of history there’s typically a period of rapid growth that follows on the other side of a recession. While that hasn’t been realized in this cycle, there’s reason to be optimistic.
Smart Business spoke with Korzenik about the state of the economy and the signs to look for that signal better or worse conditions are on the horizon.
What economic indicators might suggest that growth is or isn’t at a point that would give entrepreneurs confidence?
Entrepreneurs can take confidence that there are many positive indicators, such as improvements in consumer strength, not just traditional consumer spending statistics but forward indicators of future spending. Payroll growth is part of that. Though its pace may be disappointing, it does reflect continued growth in the economy. Also the improvement in credit scores bode well for future spending.
The demographics of the U.S., at least for entrepreneurs in some sectors of the economy, give reason to be optimistic. While the focus tends to be on baby boomer retirement, what seems to be overlooked is the upward trend of millennials coming into the workforce. They’re increasingly moving into homes and driving demand in the housing market, and at the same time they’re driving demand for consumer goods.
What can be seen as signs of positive momentum heading into 2016?
One positive sign is that automotive sales are flirting with new records. The increase in household formations is an advanced indicator for demand for housing. And the continued growth in payrolls is certainly encouraging.
What could be an important early indicator of economic growth are the results from surveys of purchasing managers in manufacturing. Those are showing continued growth, though they have reflected loss of momentum in recent months. Close attention is being paid to borrowing costs for corporations, which can indicate confidence.
As unemployment creeps lower it suggests business expansion in the U.S. is coming to an end. That concern in the labor markets can be tempered by the slack that exists in the global economy. If we start to reach the limits of our capacity in the U.S., we can still see growth in the global economy, which has a positive feedback mechanism that can support continued U.S. growth.
What indicators will you be watching for in the coming year that could suggest the U.S. is headed for positive or negative economic growth?
We’ll be on the watch for rising energy prices. That can be constructive if it’s modest and gradual particularly for the U.S. economy, which produces and consumes a lot of energy.
While the best-case scenario is China and other emerging market countries can manage through the challenges of naturally slower growth, policy mistakes in those markets have some ripple effects in the U.S, specifically the continued economic reform in China. It’s not a disaster scenario but it could impact global growth. In Japan in the long term, it will be interesting to see the impact of the Trans-Pacific Partnership. There will likely be a vote in Congress to lift the oil export ban, which has interesting implications for the U.S. and the global economy.
There is good news on the horizon. For instance, Europe’s economy is healing nicely and may accelerate its growth. Japan, on back of some reforms, could move growth a notch or two higher and that could help make up for some of the slow down that’s happening in emerging markets.
Fifth Third Bank. Member FDIC
Insights Banking & Finance is brought to you by Fifth Third Bank
