|Panel of NYC Economists, NYABE Annual Forecasting lunch, Jan. 23.|
L to R: Dean Maki, Barclays; Joseph LaVorgna, Deutsche Bank Securities;
Kevin Logan, HSBC Securities, and Bruce Kasman, JP Morgan.
At an earlier NYABE lunch in December 2008, former Fed Governor Lawrence Meyer said that with the arrival of zero-bound Fed policies, the Federal Open Market Committee might as well take a long vacation. Does it really require the seven members of the Board of Governors plus five of the 12 Reserve Bank presidents to decide how many Treasury bonds to buy in the open market via Quantitative Easing? Scaling back the QE level is expected in 2013, then (not till 2014) a raising of the target Fed Funds rate.
My takeaway is that the five years at least of the ZBE (Zero Bound Era) is a kind of Purgatory to which we are all condemned until we fully understand why we are in it. Several theories were advanced - see below under "Negatives" and "Mixed News".
The program was chaired by Dean Maki of Barclays, and the panel included Joseph LaVorgna, Chief US Economist of Deutsche Bank Securities, Kevin Logan, Chief US Economist, HSBC Securities, and Bruce Kasman, Chief Economist, JP Morgan.
All three panelists used slide shows. The first two had one chart per slide and only talked about the USA. The third had three charts per slide and focused on the global situation - "You can't understand the U.S. economy without looking at the rest of the world." The complete slides from all three presentations have been sent to members of the NYABE - you can join by going to www.nyabe.org; I recommend it.
POSITIVES - clearer picture of an exit from the abyss
The year 2012 was one of fear about a lot of things that are now settled, without terrible consequences.
High vacancy rates and rents below prior cycles suggests that rents (and imputed owner income) must rise.
The abyss resulted from a failure of government regulation of financial services and housing.
These three sectors are now paying the price - construction, financial services, government.
Job growth most likely in these three areas as the recovery progresses.
Household (and nonprofit) debt as percent of GDP near long-term trend.
This will help reinvestment in housing and more construction will mean more demand for building materials.
NEGATIVES - continuing drags on growth
Consumer spending is weak, mostly in services area.
Durables spending is in line with previous recovery cycles.
End of 2% payroll tax holiday is the equivalent of about $1,000 more tax on the average family.
In the boom years, people turned their homes into ATM machines via home-equity loans.
Now they are reducing their loan exposure, partly because of foreclosures, partly mortgage pay-downs.
Continued "debt deleveraging" (reducing outstanding loans) means a lower growth outlook.
This means a shift in the long-term trend of growth in real consumer spending from 2.8 percent to 2.2 percent.
The employment/population ration reached near 64 percent at the peak of the boom.
Now it is stuck near 58 percent.
Import prices are not rising - which is good for containing U.S. inflation.
Government fiscal problems continue, which means offsetting reductions in spending.
This will be a drag on overall growth.
MIXED NEWS - depends on whether you are looking at it as a worker or a consumer
Wage rates are not recovering.
In 2012, the wage gain was the smallest since the early 1960s, 1.5 percent.
In manufacturing, the wage gain was the smallest since the 1950s.
This is, needless to say, not good for workers.
But it means that cost-push inflationary pressures remain muted.
A good session. God is in the details, which are partly incorporated in the slides of the three panelists.