U.S. in strong global position, economist tells conference
Despite the elevated risk of a second recession, the recent U.S. debt ceiling debacle in Congress, and the ongoing European debt crisis, prospects are bright for the long-term future of the U.S. economy and the retail real estate industry, attendees heard at ICSC’s Capital Marketplace Conference, in New York City, on Tuesday.
“We see a two-in-three chance the U.S. economy will continue to grow,” said Mark Vitner, managing director and senior economist at Wells Fargo Securities. “All in all, it’s a pretty decent environment for commercial real estate. For the sector, low interest rates and slow growth is good.”
The U.S. is in a strong position globally, with exports by American companies at an all-time high, Vitner said, as evidenced by the good economic health of port cities with ties to Asia and Latin America. In contrast, economies at port cities on the Eastern seaboard with ties to Europe are slowing, he said. Miami’s job growth is up 1.5 percent year on year, and the Florida economy is growing faster than the rest of the country.
Moreover, the global economy is swinging back in favor of developed countries and away from emerging markets, Vitner said. “The second half of this decade will belong to the developed world,” he said. “By the end of the decade, China will have no labor cost advantage over the U.S.” In addition, the U.S. already has the cheapest cost of energy of any nation, he said. As emerging-market labor grows more expensive in coming years, more manufacturing activity will return to U.S. shores, he predicted, with Southern industrial cities and ports, such as Houston; Mobile, Ala.; and Tampa, Fla., benefiting most.
For now, the largest problems facing the U.S. economy are unemployment and the housing slump. “The U.S. is 7 million jobs less than before the recession,” Vitner said. “The people who usually spend more than their income have no more income.” The Federal Reserve’s quantitative-easement program drove high-end sales for a while by stopping stock-market volatility, but wage and salary growth remain relatively low, he said.
The U.S. government is not likely to improve the economy until after the 2012 presidential election, he said. “I expected something a little more tangible from Obama,” he said, referring to the president’s presentation on Monday of $3 trillion in deficit-reduction measures that included $1.5 trillion in tax increases, $1 trillion in war savings and $580 billion or so in mandatory program savings. “I don’t want to count the ending of the wars in Afghanistan and Iraq as budget reduction.” Vitner also has low expectations for the bipartisan debt-reduction “supercommittee” charged with making recommendations for cutting trillions from the U.S. budget by Nov. 23. “They might get something done, but it will have to wait until after the election to be implemented. Progress will be made by whoever wins.”
Vitner added that politics is probably interfering with relief efforts for the 2.1 million U.S. homes currently under foreclosure, and that trend is making unemployment worse. “The great thing about the U.S. is, if one part of it is screwed up, people will move to another. But the housing slump undermines employment mobility.”
The solution, he said, would be to offer a guarantee on negative equity to homeowners who owe more on their mortgages than the home is worth, so that they can sell the house and apply the guarantee to another purchase. But politicians are wary of being accused of another “bailout,” he said, so they will wait until after the election to pursue anything like that.
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