Economist preaches patience
The United States can expect an economic boom — in about five to 10 years.
Until then, however, the U.S. will sputter like a car running on three cylinders, through muddled growth and possibly a small recession, according to Jeff Korzenik, senior vice president and chief investment strategist at Fifth Third Investment Management Group.
He said the national economy is strong because of three factors: employment growth, consumer spending and housing. A great U.S. economy won’t come for another decade, however, because of an aging workforce — the baby boomers — and a massive but inexperienced group — the millennials — set to replace them.
Many across the nation are wary of the current economic surge, believing all such expansions have an end date, but the factors are strong enough that Fifth Third concludes a slowdown is not imminent.
“There is, essentially, enough slack in the economy and forward momentum that we believe a slowdown is still several years away,” Korzenik said. “Like any vehicle that’s not running on all cylinders, the ride will be slower than you’d like, rougher than you’d like and less reliable than you’d like, but it can still get you there.”
The first factor Korzenik noted that indicates a strong, improved economy is the steady net growth of approximately 200,000 jobs a month, which has dropped the national unemployment level to below 5 percent. That leaves economists with a question about when the U.S. will run out of workers, a worry Korzenik counters by saying there is an “ample supply of part-timers who want to work full time and marginally attached workers starting to come back.”
He said it’s the first time the labor rate is on an upswing following 15 years of decline.
The employment growth is good news for consumer spending, as well. Korzenik said new and growing paychecks are helping boost the economy and lower debt burdens — the lowest the nation has seen in decades. With the recession in the rearview mirror, Korzenik also said consumers are in the seven- to nine-year range where the destroyed credit ratings are now returning to normal scores. With better credit scores and lower debt, consumers are in a better position to buy and finance “big ticket items,” Korzenik said, such as cars and appliances.
The third positive factor is closely related to one of the negative factors: With the large millennial demographic coming of age, there’s a bell curve distribution of people in their mid-20s who are looking for housing.
“Just as it was important to watch what the baby boomers did in the 1970s and 1980s as they came of age, it will be important to watch what millennials are doing,” he said. “As you move through this cycle, you create new housing units, and the new housing units will be more economically intensive.”
Anecdotally, Korzenik has seen millennials moving to downtown areas across the nation, with most cities creating new downtown housing strategies.
“Not all of them will be successful, but I can see Grand Rapids clearly has the attributes that are attractive and will be very successful in creating and building an urban residential core, which is great for quality of life,” he said.
The age demographic is also a negative for the present economy, as baby boomers are leaving the workforce and drawing on their savings.
Normally, U.S. productivity grows approximately 2 percent each year. Productivity fell to 1 percent last year, and 0.5 percent in the first quarter this year, which Korzenik credits to the exit of the nation’s most experienced workers. The issue will resolve itself, he said, with a chance of a recession caused by a demand for workers outpacing the demographic shift.
“The same thing happened when baby boomers were coming of age,” Korzenik said.
“New workers are coming in, and they’ll have their day in the sun. Wait until the bulk of the millennial generation is in their mid-30s and moving forward. That’s when productivity picks up, which increases compensation, and that increases consumption.
“We have a great story five or 10 years from now, but how do we get from here to there?”