Last Thursday, November 14, I had the opportunity to attend an Economic Summit sponsored by the Whatcom Business Alliance. The first speaker was Jim Paulson, an economist with Wells Capital Management of Wells Fargo Bank, and his topic was Economic & Market Perspectives. Hart Hodges, from WWU, was the second speaker on the program, to discuss the local economy. Unfortunately, very little time remained for his presentation.
From Jim Paulson’s perspective, there were 3 years between the beginning of the recession and the beginning of the recovery in June of 2009. He now describes us as being in the middle of a 10 year recovery. During the recession the US lost 25% of its net worth, and he expects it to have gained 30% by the end of 2014, although he doesn’t expect more than 2% growth in GDP, if that much, over the next few years. Since the 1980s, there have been 3 recessions, after all of which the economy has taken about 3 years to begin recovery. He described this as different from recoveries of the past, which happened much more quickly, and blames at least part of the slow recovery on the low rate of growth in the labor resource base, saying that labor growth has fallen from 3.5% to .6%, and suggesting we open Ellis Island.
So why do we have these boom/bust cycles? They are due to our obsessive optimism. When everything looks good, Americans think it will always stay that way, but, of course, the bubble bursts and a lot of people lose money because a lot of other people can’t pay their bills. On the other hand, this cleans the slate, lowers debt loads, and allows us to do it all over again. A quote to live by: “When everything looks good, get conservative.”
The speaker was a believer in the “invisible hand” of economic theory, which holds that the efforts of individuals to make money results in benefits to society as a whole, and this force is stronger than government intervention and controls. Therefore, he sees the following factors as the primary reasons behind the economic upturn:
- The turnover rate of money will increase in 2013
- Homebuyer affordability is extremely high and there is pent-up demand
- Household balance sheets are stronger because they dumped debt
- Company balance sheets are very strong with unspent buying power and no capital spending push
- The value of the US dollar is low, although its international markets are having financial issues which limit their purchases
- Inflation rates are still low, increasing buying power
- Increased oil and natural gas production has provided an Energy Independence Dividend in the form of lower gasoline prices
- And the biggest stimulus of all: Increasing confidence, which is being restored at the rate of about 3% per month
On the other hand, he sees the low interest rates and other stimulus efforts by the FED and the federal government earlier of minimal impact.
To a question regarding the national debt, he responded the number didn’t matter; what matters it its relation to GDP. He also suggested we not worry about what government does; what matters is what the markets do.
The second speaker of the morning, Hart Hodges, economist from WWU, had just a few minutes to give us a very brief overview of our local and state economies, but he was able to offer a few interesting facts.
- We are seeing slower growth in key sectors and slower wage growth than the country as a whole.
- Bellingham population growth is down from 1990
- The Whatcom County GDP growth generally tracks with the state and national GDP
He left us with an interesting question: Since our incomes are rising more slowly than elsewhere in the country, what impact will that have on population mobility and in-migration to Whatcom County?
My overall impression of the morning? Jim Paulson was very entertaining and had some great charts and graphs to illustrate his historical background of the economy. I found his evaluation of current economic conditions and vision of the future rather shallow and ignoring some of the elephants in the room. He did not talk about the future impact of the shrinking middle class or the loss of high paying manufacturing jobs (not just abroad, but to other areas of the country as with Boeing), and stated several times that the sequester was going away as of next year. On the other hand, his theory about the founding fathers trying to design a central government without power seems bolstered by recent events in Washington, D.C.
Hart Hodges, as I said earlier, had very little time, and I would have enjoyed his perspectives on the prior speaker’s comments in the context of our local economy.
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