What if the U.S. economy was a Hollywood plot? And the star-studded cast included a new Federal Reserve chairman, the consumer, businesses small and large, and the major players on Capitol Hill?
That’s the twist UMB Financial Corp. forecasters are taking in their economic outlook presentations to clients and prospects this time of year. Almost 100 people gathered Feb. 5 at Hickory Hills Country Club for “2014: The Sequel” – KC Mathews’ and Eric Kelley’s take on how the economy will play out this year on the so-called big screen.
At the least, it made a potentially dry economic lunch presentation palatable. But there might be more to take to your office from this faux box office feature.
The plot thickensThe UMB folks cite three plot lines: subdued production, federal policy/quantitative easing, and a soft labor force.
Last year at this time, UMB Chief Investment Officer Mathews and his team considered the economic climate a “policy basin.” As you can tell by the 2014 title, the outlook is little changed but with its own twists and turns.
With slow 2 percent economic growth in 2013, Mathews predicts the “snail economy” will persist, and the UMB team pins 2014 gross domestic product growth at 2.4 percent.
By comparison, the Congressional Budget Office, which is designed to provide nonpartisan analysis to Congress, released an estimate Feb. 4 of 3.1 percent annual GDP growth – following a positive fourth-quarter uptick of 3.2 percent, compared to the previous quarter.
Describing quantitative easing, aka QE, as the ring in “Lord of the Rings,” Kelley said the stock market moved lockstep with QE, possibly saving the country from another Depression. QE is the Fed’s massive bond purchase program aimed at lowering interest rates and growing asset levels – factors that work together to boost consumer confidence. Through the unconventional monetary policy moves, the Fed now owns $4.1 trillion in bonds and will continue to taper its bond purchases to phase out the stimulus.
The action might set up stronger local economies.
“State and local government could possibly be the shining star in GDP this year,” said Kelley, UMB’s director of investment management.
We’ve seen some traction locally as tax and jobs incentives packages have jumpstarted development plans – from center city Springfield student housing to the handful of stainless steel manufacturers planning to add 220 jobs combined in the next year or so.
The national jobs picture is a bit more misleading due to news headlines. Yes, this news guy said it. I’ve learned why: While the main unemployment rate is trending down toward 6 percent, and media has covered it well, the figure doesn’t factor in the marginally and part-time employed. You have to look behind the curtain to what the Bureau of Labor Statistics calls the “U-6” unemployment rate. When they are part of the equation, the U-6 rate ended the year at 13.1 percent.
“There is still a ton of slack in the economy,” Kelley said, noting the total labor force statistics include job seekers who are not yet employed.
On top of that, 10,000 baby boomers retire every day. “The baby boomer bubble is working its way through the economy,” Mathews said, adding the workforce participation rate is down to 63 percent due to retirees, people remaining in school longer and those discouraged by employment opportunities.
If you can’t tell yet, Mathews and his team are data juggernauts – during audience questions he only got tripped up once recalling related stats off the cuff. In fact, his investments department in Kansas City has a jocular motto: “In God we trust; everyone else bring data.”
Character developmentWith the economic plot laid out, we can start to see the characters develop. This year’s supporting cast includes China, Europe and the currency crisis, but UMB analysts say those things shouldn’t derail U.S. economic growth.
A longtime key figure, Ben Bernanke, is now “the leaving man” in this drama. He stepped down Feb. 1 and gave way to Janet Yellen, who is said to be in line with Bernanke’s policy views. Considered “dovish,” Mathews said Yellen strongly views monetary policy as a driver of economic activity. In others words, expect more of the same with Yellen.
So what does that mean for consumers? A lot, considering 60 percent of the economy is consumption. We just haven’t had the means to consume at the same pace the last few years.
“Consumers got a good punch in the gut,” Mathews said. “But they fight back, like Rocky.”
Part of the consumer comeback is the falling debt burden. Ironically, a big chunk is due to bankruptcies filed in 2006 and 2007 getting expunged after seven years.
“That’s the good side of the story. Credit records are clearing,” Mathews said.
As for businesses, UMB’s frontline feedback reveals a movement from uncertainty in 2012, maybe opening up in 2013 and now with a little cash in hand to start spending.
“It feels like some of that is going to happen,” Kelley said, noting business clients surveyed in October indicated they stored up some money during the low economic basin.
Of course, good dramas need a cliffhanger, and this story looks to Washington, D.C.
The political characters seem to be lingering, but Mathews and Kelley say come midterm election time, they’ll be center stage. Take note, they say, of how the elections influence consumer confidence.
I give “2014: The Sequel” a thumbs up. May the economic forces be with you.
Springfield Business Journal Editor Eric Olson can be reached at eolson@sbj.net.[[In-content Ad]]
