Opposing views of economy open CSP's 2013 Outlook Leadership Conference
SCOTTSDALE, Ariz. -- An economy trudging toward recovery or one poised for yet another collapse. About 600 attendees at CSP's 2013 Outlook Leadership Conference heard two differing views of the nation's financial health at an opening general session on Sunday.
Economic conditions in the United States have "stabilized," according to Andrew Busch, editor-in-chief of The Busch Update and global currency and public policy strategist for BMO Capital Markets' investment banking division in Chicago. "It's not 2008," he said, referring to the year the most recent recession began. "For those looking in the rearview mirror, it's not catching up, it's getting further away."
He noted growth in gross domestic product (GDP) was at 2.8% and recent unemployment figures were falling, with recent reports adding 204,000 jobs. He said firms less than a year old should be credited for the new jobs created and that government needs to ultimately grant tax advantages for all corporations to keep the economy on the right track.
On a more pessimistic note, several economic signs point to yet another economic downturn, suggested a second speaker, Walter Zimmermann, vice president and chief technical analyst for United I-CAP, London. "Striking parallels exist between current trends and 2007 [leading up to the recession]," he said. "Investors are bullish and complacency is rampant."
Market signals on the S&P 500 regarding commodities resemble July 2008, when the last economic bubble burst. In addition, the derivatives market, which played a critical role in the last downturn, was at $500 trillion in 2007 and today is at $710 trillion. "We've swapped price risk for counter-party risk," he said.
One of Zimmermann's biggest concerns was median household income, which he described as having fallen sharply. "Billions of dollars are being poured into [nontraditional] advertising like Twitter," he said. "But what if the problem is median household income? Can Twitter meet expectations?"
The goal of advertising is to generate new spending, Zimmermann pointed out, but what if the middle class simply doesn't have more money to spend? Then there's a disconnect, he suggested. Showing a chart plotting income compared to upward mobility, he said the United States has a divergent pattern, with incomes being high but mobility being one of the lowest in the world.
Offering a more optimistic view, Busch noted that globally, conditions look promising, especially in China, where he said enough progressive forces are in play to potentially privatize land. Such a move in a traditionally communist nation rich in property could be key to that country's prosperity.
The panel's moderator, Richard Karlgaard, publisher of Forbes magazine, also added his perspective to the discussion, noting that the "top line" view was essentially not good. He said annual growth during the current recession was 2%, whereas in past recoveries it was 3%. In other recessions that have included earth-moving events such as the resignation of the country's president and the fall of Saigon, growth was still 50% better than what it is today.
Karlgaard characterized the current recovery as having a wide "disparity" in that some parts of the country or even parts of any given state are experiencing record growth, while others are at the other e
xtremes in hardship. He said in parts of North Dakota where the energy sector is booming, fast-food cashiers are making $20 an hour, compared to cities like Stockton, Calif., which is experiencing 20% unemployment.
In a question-and-answer session following the formal presentations, panelists were asked how the growing energy sector can improve the economy as a whole. Zimmermann said that outside the manufacturing of petrochemicals, he's not sure how other industries could benefit. Busch said that overall, health reform was going to be a challenge but as a country, improvements in the skills of its labor force would have to be made as would access to resourcesfor the nation's entrepreneurs.
CSP's Outlook Leadership Conference continues through Tuesday in Scottsdale, Ariz.