Despite the talk of impending doom by most economic experts, a Fifth Third Bank chief market strategist says leading national and international indicators point to a strengthening U.S. recovery.
John Augustine, who manages approximately $25 billion in assets for the Fifth Third Bank, discussed 10 macroeconomic factors and six market observations as well as two recommendations for the future during a speech Tuesday sponsored by the Wapakoneta Area Economic Development Council.
He touched on the economic factors affecting the global economy and the national economy down to the local economy.
“We are going back up, we are just not going up as fast as everyone wants,” Augustine told the media prior to his speech. “The economy use to grow at 3 percent and now it is growing at 2 percent — we would like for to grow 3 percent and that is what we are all hoping.
“However the stock market is doing very well, the stock market is trying to get ahead of all that, the stock market is having a very good year and investors should have recovered all of their losses from 2008,” said the chief strategist, who appears on CNBC and serves as a visiting professor at an Ohio college. “We are at new higher highs for the stock market and that is great for 401(k)s and IRAs and now we just need the real economy to catch up with it.”
While Augustine clarifies that the global economy is fragile and that a single disruption could cause problems, the U.S. economy continues to experience small but stable gains after the Great Recession of 2008.
He said Americans should realize the economy will grow more at a 2 percent to 2.5 percent clip than the previously held benchmark of 3 percent.
Augustine said economic prognosticators and the Federal Reserve predict approximately 3 percent growth in the economy in 2014 and 2015.
Another indicator points to 3 to 7 years of economic growth.
“We are one of the most consistent economic places on the planet right now — China is slowing down, Europe is in recession and Japan is trying to come out of a recession — the U.S., us, we are the most consistent and one of the reasons why the stock market is doing so well,” Augustine said. “Is it as fast as we want, the answer is no, but it is consistent and it is paying good dividends right now.”
He said the U.S. economic strength has been able to offset the other global weaknesses, which is apparent in the increase of U.S. exports to the world.
“They are expecting us to pull them out of the recession,” Augustine said. “That is why people will be able to see tonight (Tuesday) and in the paper tomorrow (today) that imports are up because activity is getting better here so more stuff is coming in as well as going out.”
Looking at the local economy, he said the leading indicators show the agriculture sector is still mixed while the auto industry is getting better. In a report this week, U.S. automakers are on pace to produce more than 15 million vehicles this year.
Augustine said gasoline prices are stable, noting they are about where they were last year, and market indicators have the price falling throughout the summer which is good news for travelers, especially for businesses along the Interstate 75 corridor from Detroit to Miami.
“Light business which feeds into the global supply chain we think is doing pretty well,” Augustine said. “We received an export report this morning and we are doing pretty well.”
During his speech, Augustine advised keeping an eye on Europe and what is decided by leading policy makers at the end of this month and the election results for chancellor in Germany in September. The key is will the European Union continue to bail out countries such as Greece, Italy, Spain and Portugal.
“Europe is in recession but the expectation is they are going to fall out of it,” Augustine said.
The good news is the global economy wants to pick up its pace and not slow down, he told approximately 75 people gathered at the Grand Plaza banquet hall.
Another round of good news is the sequester cuts took place and the U.S. economy didn’t fall over the fiscal cliff nor did it result in an economic recession. The cuts and increased income tax are proving to be nuisances and not catastrophic as the U.S. economy continues to chug into the future, he said.
Augustine pointed to one sector of the economy which could help with sustained U.S. growth.
“There is an amazing energy boom going on in our country, it is almost a stealth boom,” said Augustine, who pointed out U.S. crude oil production is now slightly above imports. “We are now at a push with imports. There is an amazing energy boom in this country and it is not going to stop and this does not include natural gas production.
“The amazing thing now is the U.S. is the low cost energy producer in the world,” he said. “Over time, if you nurture being the low cost energy producer then you are the winner economically. There could be a great boom to our economy from this.”
Crude oil and natural gas prices should be driven down this summer, he said, which is good news for the consumer.
He explained crude oil fuels 94 percent of the economy and that in the next 5 to 15 years Americans should witness efforts to break that monopoly which will rearrange the energy usage and production.
Addressing agriculture, Augustine said commodity markets will likely move sideways for the next several years, although individual commodities will move independently and have scattered results.
He explained the U.S. Department of Agriculture is blamed for “not getting it right” in regard to acreage planted and commodity production which cause problems in the market.
He advised people to invest in common stocks and mutual funds as gold “is losing its luster” and people should not invest in cash.